The Impact of the CEO’s Personal Narcissism on Non-GAAP Earnings

The Accounting Review https://doi.org/10.2308/TAR-2017-0612

53 Pages Posted: 16 Jul 2020 Last revised: 24 Aug 2020

See all articles by Ahmed M. Abdel-Meguid

Ahmed M. Abdel-Meguid

The American University in Cairo - School of Business

Jared N. Jennings

Washington University in St. Louis

Kari Olsen

Utah Valley University

Mark T. Soliman

University of Southern California - Marshall School of Business

Date Written: June 5, 2020

Abstract

Non-GAAP earnings provide managers the flexibility to exclude GAAP items to either produce a more informative performance measure or provide them the ability to opportunistically exclude recurring expenses from non-GAAP earnings. Prior literature examines the use of this form of disclosure at the firm level, although it is ultimately management’s decisions. We extend prior non-GAAP literature by examining whether the use and quality of non-GAAP earnings is influenced by CEO personality traits; namely CEO narcissism. We find narcissistic CEOs are more likely to exclude expenses from non-GAAP earnings and that the magnitude of exclusions is greater. We also find that those non-GAAP exclusions are more persistent, and thus lower quality. Our results shed light on the disclosure practice of non-GAAP earnings and show how narcissistic CEOs are more likely to take advantage of the discretion in financial reporting disclosures in order to benefit the firm and themselves.

Keywords: Non-GAAP earnings, Earnings persistence, Narcissism, Executive personality traits

JEL Classification: M40, M41

Suggested Citation

Abdel-Meguid, Ahmed M. and Jennings, Jared N. and Olsen, Kari and Soliman, Mark T., The Impact of the CEO’s Personal Narcissism on Non-GAAP Earnings (June 5, 2020). The Accounting Review https://doi.org/10.2308/TAR-2017-0612, Available at SSRN: https://ssrn.com/abstract=3634238 or http://dx.doi.org/10.2139/ssrn.3634238

Ahmed M. Abdel-Meguid

The American University in Cairo - School of Business ( email )

The American University in Cairo (AUC)
School of Business
New Cairo, 11835
Egypt

Jared N. Jennings (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Kari Olsen

Utah Valley University ( email )

800 West University Parkway
Orem, UT 84058
United States

Mark T. Soliman

University of Southern California - Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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