Abstract
Research has been trying to analyze cognitive decision making processes of top-executive for decades. In particular, economic and organizational research on overconfidence (e.g., the notion that one is better than the average) and narcissism (e.g., exaggerated feeling of self-importance and the need for admiration) among the upper echelons has shown to influence firm strategies and firm level outcomes in similar ways. Yet these approaches appear in distinct research disciplines. Although both constructs are theoretically and empirically linked, and have shown to affect key organizational outcomes, surprisingly little clear empirical consensus exist how these constructs—individually and mutually—affect firm level outcomes. I try explain this puzzle by providing an overview of the leading approaches of executive overconfidence and executive narcissism research. To disentangle both constructs conceptionally and empirically, I review a large sample of articles that are nested in leading economic and business journals. Thus, I identify key operationalization issue and discuss how divergent literature streams in Economics and Organizational Behavior may benefit from each other. The review suggest that paying more attention—theoretically and empirically—to the interaction of overconfidence and narcissism may help to augment knowledge accumulation in the field. Furthermore, greater validation concerns of unobtrusive measures and its endogenous nature may help to rule out alternative explanations. Generally speaking, the results suggest that top-executive overconfidence and narcissism are not mere interesting psychological biases but affect firm-level outcomes in important ways.
Highlights
The New York Times reported in 2002 on the lawsuits against corporate executives amid a series of earnings restatements, accounting scandals and sudden bankruptcies at Enron, WorldCom, or Tyco Inc, including the $600 million fraud scheme of former Tyco Chief Executive Officers (CEOs) Dennis Kozlowski, who was alleged of stock fraud, unauthorized bonuses and falsified expense accounts (The New York Times 2002)
Narcissistic CEOs may be conducive for firm level innovation (e.g., Kashmiri et al 2017) while increasing the likelihood to be involved in corporate fraud (e.g., Rijsenbilt and Commandeur 2013), thereby providing arguments for “bad” as well as “good” outcomes of CEO narcissism
The results indicate that the narcissism construct has attracted greatest attention from large leadership journals (Leadership Quarterly, Journal of Business Ethics, Human Relations) as well as major journals in management (Journal of Management, Strategic Management Journal, Academy of Management Journal)
Summary
The New York Times reported in 2002 on the lawsuits against corporate executives amid a series of earnings restatements, accounting scandals and sudden bankruptcies at Enron, WorldCom, or Tyco Inc, including the $600 million fraud scheme of former Tyco CEO Dennis Kozlowski, who was alleged of stock fraud, unauthorized bonuses and falsified expense accounts (The New York Times 2002). Overconfident CEOs may be conducive for firm level innovation (Hirshleifer et al 2012) while increasing the likelihood to undertake value-destroying M&As (Malmendier and Tate 2005), thereby providing similar arguments for “bad” as well as “good” outcomes of CEO overconfidence. Given this evidence of contradictory findings of overconfidence and narcissism independently, further improving our “[...]understanding of the relationship between narcissism and overconfidence and especially when in positions of power, is important” Either by aggregating CEO personality dimensions with traditional means (e.g., Big 5; Five Factor model: Herrmann and Nadkarni 2014; Peterson et al 2003), or by looking at single “bright” (e.g., humility: Ou et al 2016) or “dark” CEO personality characteristics (see Smith et al 2017 for a review)
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