CEO Narcissism, Human Capital, and Firm Value

Abstract

Clinically-established defining characteristics of narcissists suggest CEO narcissism likely
impacts firm value through human capital channels. Consistent with classic narcissist traits of
undervaluing people and lacking empathy influencing CEO decisions, we find narcissistic CEOs
are more likely to initiate layoffs, do so after less severe downturns in performance, and put less
weight on potential human capital losses when making layoff decisions. Event study results
imply narcissistic CEOs destroy value through suboptimal layoff decisions in high human capital
intensity industries. Defining characteristics of narcissism also suggest CEO narcissism likely
impacts firm value through an executive human capital channel. We find turnover of non-CEO
executives with pay closer to their CEO’s is greater under narcissistic CEOs, and stock price
reactions to these departures are more negative the longer their tenure. Event study results for
CEO departures imply a negative net impact of CEO narcissism on firm value through both
human capital channels.

Keywords: narcissism, executives, turnover, layoffs, human capital, behavioral finance

JEL Classification: M12, M51, M54, G40