Narcissistic corporate managers do not share!

Stakeholder theory implies that firms’ economic and social purpose is to create value for all their stakeholders, without favoring any group. However, the distribution of the value created is a matter of choice for each firm and may reflect top managers’ values and characteristics. This paper examines whether the narcissistic characteristic of top managers impacts the distribution of value added.

Using a sample of 489 top managers (368 males and 121 females) of Portuguese firms, this study shows that narcissism does not impact overall value added. Relative to the distribution of value added to the various stakeholders, the state (as tax collector), creditors and outside shareholders do not seem to be impacted by the distribution of value added. However, the same does not apply to employees – their salaries are directly affected. Employees of firms led by narcissistic top managers receive less remuneration than those of other firms. At the same time, the results show that narcissistic top managers tend to capture more value added for themselves.

The economic significance of the results is striking. Considering the maximum and minimum values observed for narcissism and the estimated coefficients in our model, the value-added differential captured by the most narcissistic top managers vis-à-vis the least narcissistic top managers represents one-third of the value added distributed, on average, to the top managers, all else equal. Moreover, on average, for one standard deviation increase in the narcissism variable, the value added captured by top managers increases 7.0%, and the value added distributed to each employee decreases 10.5%.

Click here to go to the paper by Carlos F. Alves and Maria João Guedes.