CEO psychological biases, firm performance and alternative mechanisms in transition economies: Evidence from Malaysia

Abstract

AbstractThis study examines the impact of CEO psychological biases (narcissistic and hubristic) in CEOs on a firm’s performance measured by long-term investor value appropriation (LIVA) in Malaysia. Based on a sample of 560 Malaysian firms for 2007–2022, we find the negative effect of CEO narcissism and hubris on firm performance. In comparative terms, the impact of CEO narcissism is more pronounced. Furthermore, we tested the moderating role of CEO attributes. CEO-duality and ownership moderate the CEO-narcissism/hubris LIVA negative relationships, whereas CEO tenure curtails the relationship. Furthermore, we also tested the role of governance in curtailing the effect of CEO narcissism/hubris on LIVA. The findings show that gender critical mass, foreign ownership, and group affiliation substitute the negative impact of CEO narcissism/hubris on LIVA. However, board independence and strategic alliance only weaken the negative effect of the psychological biases (narcissistic and hubristic) on LIVA. In additional analyses, gender critical mass is a substitution mechanism for the direct impact of foreign ownership and group affiliation on LIVA. This study enhances the existing knowledge on CEO narcissism and hubris by illustrating that CEO personality qualities impact the firm performance in the emerging context of Malaysia.

Keywords

• CEO narcissism
• CEO hubris
• corporate governance
• ownership structure
• relational governance
• Malaysia