The impact of the CEO's personal narcissism on non-GAAP earnings

Funding Sponsor

University of Southern California

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https://doi.org/10.2308/TAR-2017-0612

Document Type

Research Article

Publication Title

Accounting Review

Publication Date

1-1-2021

doi

10.2308/TAR-2017-0612

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 the firm level, although it is ultimately management's decision. 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.

First Page

1

Last Page

25

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