The influence of CEO narcissistic personality traits on the indebtedness of B3 companies

Abstract

The objective of this article is to investigate the influence of CEO narcissistic personality traits on the indebtedness of Brazilian non-financial companies listed on the B3. Other research on narcissistic traits has focused on their impact on the profitability of organizations. Thus, this study aims to fill the gap in understanding the impact of CEO narcissistic traits on companies’ debt decisions and their determinants by including a psychological characteristic. This research is relevant because it helps academics, business professionals and policymakers to identify patterns and trends that could warn of possible financial crises. The impact of this article is related to the evidence on the effects of hiring narcissistic CEOs on indebtedness, since understanding the interaction between the CEO’s profile and the company’s financial decisions can provide practical guidelines for risk management and informed decision making, thus contributing to the field of business strategy and corporate finance. A sample of 299 non-financial companies was analyzed from 2011 to 2020, using data from the Economática database, annual reports, integrated reports, sustainability reports and management reports. Two proxies were used to measure narcissistic personality traits, based on the CEO’s signature and the prominence of his or her photo. Indebtedness was measured by the following indicators: onerous, total, short-term and long-term debt. The results show that the greater the narcissistic traits of the CEOs, the greater the indebtedness of the organizations. This contributes to a deeper understanding of the factors that influence companies’ financial decisions, since identifying the factors that lead to risky debt decisions can enable the implementation of preventive measures and more effective risk management strategies.