Narcissistic audit committee chairs and the quality of non-IFRS disclosures

Abstract

We examine whether a narcissistic audit committee (AC) chair influences the quality of non-IFRS earnings disclosure. We find that executives are more likely to opportunistically subtract persistent income-decreasing items from IFRS earnings in firms with ACs chaired by highly narcissistic individuals. Interestingly, unlike the common belief that narcissism destroys value, our findings suggest narcissism of an AC chair enhances the quality of non-IFRS earnings. This effect is particularly pronounced when the narcissistic AC chair possesses relevant experience, such as accounting expertise, firm-specific knowledge, or corporate governance experience. Additionally, our results show that the quality of non-IFRS earnings is enhanced when the narcissistic AC chair has fewer personal ties with the CEO and is motivated to assert their authority in monitoring. Importantly, our results are robust when controlling for potential endogeneity.