Is narcissism a bad sign? Three empirical analyses of narcissistic audit committee chairs

Abstract

This thesis seeks to provide unique insights of the role of narcissism in shaping audit committee (AC) chair’s monitoring behavior. It consists of three empirical papers, each of which analyses the influence of narcissistic AC chair on one particular firm outcome or phenomenon, including the disclosure of non-International Financial Reporting Standards (IFRS) earnings, reporting readability and complexity, and tax avoidance behavior. The motivation of these papers derives from two streams of literature: (Ⅰ) the implications of AC latent variables including members’ disposition and personality traits for the governance of large public firms; and (Ⅱ) the influence of personal narcissism for firms’ non-executive monitoring directors. Theoretical contributions and practical implications of the separate papers are explained thoroughly in the Introduction sections of Chapter 2, 3 and 4 accordingly. This thesis adopts quantitative research methods, using time series data from FAME, Refinitiv, Bloomberg, and BoardEx databases to conduct empirical investigations and draw inferences of UK corporate behavior. The baseline model is a pooled OLS regression with industry and yearfixed effects. Before running the model, descriptive statistics including correlations are used to identify distribution issues of variables, outliers and multi-collinearity problems. In the main analysis, statistical inferences of the main test variables and according economic significance are interpreted. After that cross-sectional tests are introduced to identify and examine potential channels. The empirical analysis part of each paper ends by introducing a battery of robustness checks. These include other measures of the independent and dependent variables, inclusions of other control variables, and alternative model specifications. The overall conclusion of this thesis is that narcissism is double-edged sword that could either improve or deteriorate the monitoring quality exerted by the AC chair. Specifically, paper one finds that AC chair narcissism improves the quality of non-IFRS disclosures when narcissistic AC chairs have more experience or better monitoring incentives, while reduces the quality of non-IFRS disclosures in the presence of powerful CEOs or low AC chair independence. Paper two finds a negative association between AC chair narcissism and annual report readability. This finding is consistent across AC chairs with varying degree of accounting expertise, firmspecific knowledge, and corporate governance experience. Paper two concludes that the annual report readability of firms whose ACs are chair by narcissistic individuals improves in settings where narcissistic AC chairs have better monitoring incentives or where external monitoring mechanism is strong or managers have decreased inclinations to obscure or divert rent from shareholders. Paper three delves into the effect of narcissistic AC chair on firm’s tax avoidance strategy. It finds that the presence of a narcissistic AC chair strongly curbs the aggressiveness of corporate tax avoidance. Further tests suggest that the negative relationship between AC chair narcissism and tax aggressiveness escalates in financially constrained firms or firms with high financial distress. Also, paper three suggests that improved information environment and increased costs of litigation accentuate the influence of narcissistic AC chair on reducing tax aggressiveness. Limitations and suggestions for future research are outlined in the Conclusion sections of the corresponding chapters.

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Identifiers

ORCID for Jinghan Guan: orcid.org/0000-0002-5652-5186

ORCID for Alaa Zalata: orcid.org/0000-0003-2018-4313

ORCID for Pingli Li: orcid.org/0000-0001-5020-9126

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