The Impact of the CEO's Personal Narcissism on Non-GAAP Earnings
Abdel-Meguid, Ahmed, Jennings, Jared N., Olsen, Kari Joseph, Soliman, Mark T.
The Accounting Review · 2021 · Volume 96 · Issue 3
Abstract
Non-GAAP earnings provide managers the flexibility to exclude GAAP items to either produce a more informative performance measure or provide them the ability to opportunistically exclude recurring expenses from non-GAAP earnings. Prior literature examines the use of this form of disclosure at thefirmlevel, although it is ultimatelymanagement'sdecision. We extend prior non-GAAP literature by examining whether the use and quality of non-GAAP earnings is influenced by CEO personality traits, namely, CEO narcissism. We find that narcissistic CEOs are more likely to exclude expenses from non-GAAP earnings and that the magnitude of exclusions is greater. We also find that those non-GAAP exclusions are more persistent and, thus, lower-quality. Our results shed light on the disclosure practice of non-GAAP earnings and show how narcissistic CEOs are more likely to take advantage of the discretion in financial reporting disclosures in order to benefit the firm and themselves.
Keywords
non-GAAP earnings, earnings persistence, narcissism, executive personality traits
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