The impact of CEO narcissism on the cost of capital: evidence from an emerging market

PurposeOne personality trait of managers that may influence organizational risk-taking and financial decisions is narcissism. This research examines the impact of CEO narcissism on the cost of capital and explores how corporate governance mechanisms moderate this relationship.Design/methodology/approachThis study utilized a descriptive-correlational research design. Data were collected from 126 corporations listed on the Tehran Stock Exchange (TSE) between 2013 and 2023, resulting in a final unbalanced panel dataset of 1,096 corporation-years of data. CEO narcissism was assessed using the “CEO signature size index” (Ham et al., 2018), while the cost of capital was calculated using the capital asset pricing model (CAPM) and Gordon models. Multivariate regression and panel data methods were employed for analysis.FindingsThe results indicate that CEO narcissism has a statistically significant positive impact on the cost of capital. Additionally, board independence, audit committee independence, and big auditors weaken this relationship. In contrast, institutional ownership strengthens the connection between CEO narcissism and the cost of capital. In summary, our findings suggest that managerial personality traits and corporate governance mechanisms play a crucial role in mitigating the cost of capital.Originality/valueThe effect of managerial behavioral characteristics on the cost of capital has been shown in recent studies. Building upon prior studies, this paper investigates the relationship between CEO narcissism and the cost of capital, an area of research that has received inadequate coverage so far. Finally, this study is also more general in terms of contributing to a better understanding of decision-making behavior in emerging markets.