Me, myself and I: CEO Narcissism and Selective Hedging

Abstract

In this paper, we test the hypothesis that CEO narcissism influences firms’ hedging behaviour. Unlike rare but transformative events like acquisitions, derivative usage offers the narcissistic manager a convenient stage for bold and decisive action that generates a continuous supply of attention. It therefore represents a compelling setting for investigating whether narcissism impacts corporate policies. The empirical evidence, based on hand-collected data on derivative positions in the U.S. oil and gas industry, suggests that firms with a narcissistic CEO hedge more selectively. Furthermore, we also find that these firms reduce selective hedging comparatively more following a sharp and unexpected price collapse that sent the industry into a state of distress. This result is in line with the ‘narcissistic paradox’: while scoring high on self-esteem and grandiosity in the normal case, such individuals are also inherently fragile and liable to crumble when faced with adversity.