The Impact of the CEO’s Personal Narcissism on Non-GAAP Earnings
The Accounting Review https://doi.org/10.2308/TAR-2017-0612
53 Pages Posted: 16 Jul 2020 Last revised: 24 Aug 2020
Date Written: June 5, 2020
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 the firm level, although it is ultimately management’s decisions. 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 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
JEL Classification: M40, M41
Suggested Citation: Suggested Citation