The Equilibrium Assignment of Narcissistic CEOs to Firms
37 Pages Posted: 19 Feb 2015 Last revised: 3 Oct 2015
Date Written: February 18, 2015
Firms may rationally select CEOs whose level of narcissism is compatible with their circumstances. We model the firm-CEO matching process in which narcissistic CEOs are matched to firms characterized by their shareholders’ risk aversion. This leads us to predict that (i) contemporaneous (future) CEO narcissism is increasing (decreasing) in the compensation package; (ii) CEO narcissism is decreasing in shareholder risk aversion and (iii) CEO narcissism is increasing in CEO narcissism mean reversion. We test our predictions on a 10-year sample of S&P 500 CEOs, using a time-varying measure of CEO narcissism. Our empirical results provide preliminary support for all our predictions.
Keywords: CEO narcissism, compensation, governance
JEL Classification: G30, G34
Suggested Citation: Suggested Citation