Abstract
Narcissism is related to the need for recognition. Prior studies show that narcissist behavior may influence the CEO's actions engaged in accounting numbers manipulations. This study examines the effect of CEO narcissism on accounting irregularities in Indonesia. Indonesia provides a unique setting to test this issue because narcissistic behavior is an uncommon trait in the country. Consequently, it may influence the motivation of narcissistic CEO to manipulate accounting numbers. We test the issue by measuring CEO narcissism with the characteristics of CEO's photo on the annual report. We then conduct a simple logistic regression on that proxy to the Beneish M-Score as our accounting irregularities measure. In accordance with our expectations, we find no evidence of an association between CEO narcissism and accounting irregularities. This may attribute to the fact that Indonesia's social and cultural aspects lower the incentives for individuals, including CEOs, to engage in narcissistic behavior, thereby decreasing their motivation to use accounting numbers as a venue to get attention and recognition. Interestingly, this study discovered a significant negative relationship between CEO narcissism and accounting irregularities for firms audited by BIG4 auditors. This may indicate that BIG4 auditors can significantly mitigate the intentions and activities of narcissistic CEOs in manipulating accounting numbers to get better publicity.
Highlights
In their seminal paper, Hambrick and Manson [1] suggested that organizational behavior outcomes portray their executives' characteristics
These results indicate that firms with a higher degree of CEO narcissism tend to have a lower probability of accounting irregularities
Support our hypothesis that CEO narcissism is not related to the accounting irregularities. This may be related to Indonesia's social environment, where narcissistic behavior is an uncommon trait in Indonesia
Summary
Hambrick and Manson [1] suggested that organizational behavior outcomes portray their executives' characteristics. Rispantyo [16] examined the relationship between CEO narcissism and earnings quality using a sample of manufacturing companies in Indonesia. Using Olsen and Stekelberg's [17] specification in measuring CEO narcissism for 435 firm-years during the 2014–2017 period, we failed to find a significant relationship between CEO narcissism and accounting irregularities This may support our argument that Indonesia's social and cultural aspects lower the incentives for individuals, including CEOs, to engage in narcissistic behavior, thereby decreasing their motivation to use accounting numbers as a venue to get attention and recognition. In our additional analysis, we discovered a significant negative relationship between CEO narcissism and accounting irregularities for firms audited by BIG4 auditors.
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