EXPRESS: CEO Narcissism, Corporate Inertia, and Securities Analysts’ Stock Recommendations

Abstract

The narcissism of chief executive officers (CEOs) is attracting much research interest because of its potential effects on the strategic decisions, financial performance, and competitive standing of firms. This article addresses a significant gap in the literature by analyzing the effect of CEO narcissism on security analysts’ stock recommendations (ASR). As financial-market intermediaries between firms and investors, analysts are an important corporate-governance actor, whose stock recommendations are consequential for the market value of a firm. Drawing on the idea of observers’ implicit leadership theories, we argue that greater CEO narcissism will predict lower ASR because narcissistic CEOs’ penchant for risk taking will lead analysts to categorize them as ineffective leaders. We argue further that signals of corporate inertia conveyed by the age, size, and reputation of firms will positively moderate the CEO narcissism – ASR relationship, because analysts will expect inertia to be offset by narcissistic CEOs’ risk taking, a dynamic likely to improve firm performance. U.S. panel data provides support for the theorized CEO narcissism – ASR relationship and indicates significant moderation effects of the reputation and size of firms. The article discusses the study’s contributions and implications for research and practice.