Narcissistic CEOs in Family Firms: How They Shape Diversification

Abstract

This paper explores the impact of CEO narcissism on family firms’ product diversification strategy. In addition, we investigate how this relationship is shaped by family influence using a dataset of publicly traded German firms from 2005 to 2009. Our results show that more narcissistic CEOs have a negative impact on diversification. We suggest that belief in their own capabilities and skills to successfully manage a focused business and their desire for recognition override motivations to reduce risk and stabilize earnings which are typically associated with CEOs and are normally assumed to lead to higher levels of diversification. However, we find that this negative relationship between CEO narcissism and diversification is less pronounced with increased family ownership. We also find that the effect of CEO narcissism is less pronounced for CEOs who are family members. Overall, we find that family influence can restrict the narcissistic tendencies of family CEOs. Our findings thereby extend the research on the impact of CEO narcissism on strategic decisions by adding a family firm perspective.