Research On CEO Narcissism And Distorted Enterprises Investment Behavior

The investment behavior of enterprises not only determines the quality and quantity of profit distribution,but also the lifeblood of the national economy.Therefore,how to allocate resources reasonably to the correct investment projects is a fundamental problem for the financial enterprises.However,there is no perfect market for this theorem.The distortion phenomenon such as excessive investment,low efficiency R&D investment and blind M&A is full of enterprise investment market.Reviewed the history of research on enterprise investment behavior,from classical economics investment theory to the principal-agent theory of new institutional economics and information asymmetry theory,and then to behavioral economics,the excessive reaction theory,constantly breaking the traditional theoretical assumptions.It gradually formed the research conclusion that the enterprise investment dissimilation behavior has more explanatory power.The consensus that has been reached that besides the agency contract,cognitive biases and psychological biases also affect decision makers' analysis and judgment.However,these cognitive biases and psychological biases are closely related to the individual characteristics of business decision makers.From the rational "economic man" to the "irrational actor" hypothesis,and then to "self-actualization" and "complex man" hypothesis,"irrational thinking" has gained more and more recognition and attention.The academic community gradually began to try to open the black box of business investment alienation from the CEO who had a decisive influence on corporate behavior.Integrate CEO personal characteristics into the research category of enterprise investment behavior.The research perspective mainly focuses on demographic characteristics,governance characteristics and psychological characteristics.Amongst,the research on the characteristics of CEO population and the behavior of enterprise investment implied that the difference of CEO's personal characteristics was shaped by the difference of population characteristics.It is believed that the characteristics of population affect the way and ability of the actor to understand and deal with problems,and finally embody the heterogeneity of the individual character of the actor.Although demographic characteristics do not really depict the inner individual characteristics of the actor,these dominant characteristics play an important role in explaining the behavior of CEO investment decisions.The research on CEO governance characteristics and corporate investment behavior shows strong antagonism.This may be due to different measures of measurement.On the other hand,it also triggers us to think that the influence of CEO governance characteristics on enterprise investment behavior is still largely disturbed by other factors,such as the influence of CEO's psychological characteristics.Most of the research on CEO's psychological characteristics and corporate investment behavior focuses on the negative aspects of CEO's personal characteristics and tries to seek the CEO has negative personality alienation and investment to the negative impact of enterprise value.Such negative personal traits mainly reflect cognitive biases such as overconfidence,over-optimism and risk appetite,and have not really touched on a more basic and deep-rooted personality trait than cognitive biases.Moreover,there is a lack of clear consensus on cognitive biases based on psychological theory.And it makes different researches on the hypothesis,the descriptive statistics of the sample,and the research conclusion.Compared to cognitive biases like overconfidence,over optimism and risk appetite,the research is based on the psychological theory based on the narcissism,which is a personality dimension commonly found in normal people is a more basic,more deeply rooted personality trait.As the research continues to deepen,the personal qualities of the CEO,especially the quantitative methods of psychological traits are guaranteed in reliability and validity.The explanation factors of the dissimilation of enterprise investment are enriched and the mechanism of influence is further clarified.From the perspective of "narcissism" of the CEO and other senior managers,the study of corporate finance is a research topic in the field of behavioral finance in recent years.Although the results of the study are minimal However,it has attracted the attention of foreign academic circles to explain the investment behavior decision based on the personal characteristics of CEO narcissism.Due to the late opening of China's market economy and the unbalanced development of capital market due to the planned economy,Chinese enterprises differ from western enterprises in the behavior and manner of investment.So,it is still necessary to discuss whether western scholars' conclusions can be used in China.Therefore,this paper studies the investment behavior of enterprises from the perspective of narcissistic characteristics.Specifically,this paper tries to answer the following questions:a.What effect will the narcissistic characteristics of corporate CEOs have on corporate investment behavior in the collectivist culture and market environment with Chinese characteristics?b.What CEO narcissism makes the distortion impact on the scale of enterprise investment?Can informal systems and interpersonal interactions limit the selection of investment alienation strategies driven by the CEO narcissism?What about the economic consequences of the alienation of investment in the CEO narcissism?c.What are the effects on the selection of corporate investment methods by the CEO narcissism?Which approach to invest does a narcissistic CEO prefer to,internal accumulation or external M&A?Is there any situational difference between the state-owned and non-state-owned enterprises?In terms of internal R&D investment,what are the effects on the performance in collaborative R&D projects by the CEO narcissism?In terms of external mergers and acquisitions,how does the CEO narcissism affect the selection of closed session of M&A?To answer these questions,this paper follows the following research thought processes:Firstly,based on the social background of the economic "shifting period",this paper analyzes the investment behavior of Chinese enterprises,and clearly explores the urgency of humanistic reasons behind the "wayward" investment behavior of enterprises.Furthermore,through to the related literature at home and abroad combing research progress and contexts of the field clear the previous research achievements and problems to be solved,thus lay a foundation for theoretical analysis and empirical test of this paper.Secondly,this paper using document research methods to explore the mechanism of CEO narcissism on enterprise investment scale distortion and investment way preference,and through the experimental research methods to explore the performance of the CEO narcissistic traits in R&D Cooperation and the behavior choice in closed session of M&A.Finally,on the basis of theoretical analysis and empirical conclusion,this paper"humanized" the CEO's employment mechanism,checks and balances mechanism and incentive mechanism and presents the CEO's introspection mechanism on the basis of personality psychology and leadership trait theory.This paper mainly includes three parts:Firstly,the basic part of the study includes chapters 1,2 and 3.Chapter 1 is introduction,including the realistic background and theoretical background of this paper,the research question,research value,research objectives,research ideas,research contents,research methods and research innovations.Chapter 2 is the literature review,which reviews the relevant literature of the CEO's demographic characteristics,governance characteristics and psychological characteristics.It grasps the research progress and the vein of this field,clarifying the periodic results of the previous studies and the problems to be solved.Then it brings out the research orientation and emphases of this paper.Chapter 3 is the relevant concept definition and theoretical basis,respectively defined the CEO narcissism,enterprise investment behavior,enterprise excessive investment behavior,enterprise R&D investment behavior,enterprise M&A investment behavior.Also,this part analyzes and expounds the theoretical model of narcissistic decision-making behavior,the motivation of enterprises' excessive investment and the motivation and investment of enterprise R&D,which will lay the foundation for the theoretical analysis and empirical test of this paper.Secondly,the research part of the mechanism of action includes chapters 4,5 and 6,which is the main part of this paper.This part uses document research to explore the mechanism of the CEO narcissism on enterprise investment scale alienation and investment way preference,including the alienation of investment from the CEO of high approach and low avoidant motivation,who is influenced by narcissistic traits.In this part,chapter 4 follows the research path of "from CEO narcissism to enterprise investment distortion,and then to economic consequences",and explores the mechanism of the role of CEO narcissism and enterprise investment distortion.In chapter 5 and 6,from the perspective of internal investment and external investment,it empirically examines the influence of CEO narcissism on enterprise investment way preference.Moreover,it designs two scenarios simulation experiments about "CEO narcissism and corporate R&D Cooperation" and "CEO narcissism and behavior choices in the closed session of M&A"to investigate the performance of the CEO in R&D Cooperation and closed session of M&A with different degrees of narcissism.Thirdly,the policy recommendations section is chapter 7.On the basis of theoretical analysis and empirical test,combining with the current institutional environment in China,the employment mechanism,balance mechanism and incentive mechanism of CEO are improved.The micro psychological foundation is integrated into the above management mechanism,and the humanization of the original system is corrected.Based on personality psychology and leadership trait theory,it puts forward the CEO's introspection mechanism.At the same time,it points out the research deficiency and future direction of the research.This paper gets the conclusion as follows:Conclusion one:From the point of investment scale,CEO narcissism is positively correlated with over-investment.Narcissistic CEOs are typically high approach and low avoidance.The short-sighted cognitive bias makes the narcissistic CEOs extremely sensitive to the short-term return of investment decisions and slow in reacting with the potential risk brought by the investment decision-making,which prompts them more likely to make aggressive investment decisions which is similar to "gambling" behavior.The congenital political connections and historical reasons provide favorable conditions for the self-reinforcing effect,which would affect the investment decisions of the narcissistic CEO in a state-owned enterprise.Therefore,compared with non-state-owned enterprises,the degree of narcissism of the state-owned enterprises CEOs has a more significant impact on the overinvestment tendency.Conclusion two:From the point of cash flow sensitivity,abundant free cash flow of firm will not strengthen the over-investment tendency of narcissistic CEO,and narcissistic CEOs are not sensitive to the level of free cash flow of firm in investment decisions.This result is inconsistent with previous studies on the sensitivity of overconfident executives investment tis sensitive to free cash flow,that is because narcissism is fundamentally different from overconfidence,and due to lack of empathy for external objects,the strong self-service biases lead narcissistic CEO to overlook the level of free cash flow of firm when making investment decisions.Conclusion three:From the perspective of informal institution "human-land relationship",hometown identity produces an enhancement effect for the relationship between the narcissism of the CEO and the over-investment of the enterprise.While the CEO's native place is consistent with the location of the enterprise,the degree of narcissism of the CEO is more significant to the tendency of over-investment in enterprises due to the search for a sense of hometown identity.Localism is a representative traditional culture in our country,the dependence on the local land and the "human-land relationship" formed by the sense of hometown identity are acting on the CEOs'psychology.The CEOs who works in his hometown driven by narcissistic traits,and affected by the ideology of returning home after getting fame or money and illuminating the ancestors,their vanity is magnified by the multiplier effect,and they will make large-scale investment decisions for revealing personal influence and desiring to be praised by the hometown people.Conclusion four:From the point of interpersonal interaction within the organization,the founder of the enterprise serves as a director and the interaction between the executive team and the CEO can weaken the relationship between the narcissism of the CEO and the over-investment of the enterprise.When the founder of the enterprise serves as a director,the "founder governance effect" can weaken the relationship between the degree of narcissism of the CEO and over-investment.From the point of the interaction between the executive team and the CEO,when the executive team has a longer tenure than the CEO,it will make a diversion for CEO narcissism.Conclusion five:From the point of the economic consequences of the investment scale distortion,the over-investment caused by the narcissistic characteristics of the CEO can bring serious economic consequences to the enterprise,which can be reflected in the significant performance fluctuation and the increase of enterprise risk.In the case of not distinguish between investment way,the CEO narcissistic degree is higher,the investment brings to the enterprise the more performance volatility,at the same time,it can also increase the risk of the enterprise.Conclusion six:From the point of the investment way,Companies with a high degree of narcissism of the CEO are also engaged in internal R&D investment and external M&A investment.Furthermore,compared with the internal investment,M&A investment can cause sensationalism and the rapid growth in the short term,which is more attractive for high degree of narcissism of the CEO who will take a more aggressive approach to external investment.First of all,the degree of narcissism of the CEO has a significant positive influence on the R&D investment.At the same time,the R&D investment as an important internal accumulation method of enterprises will be paid attention to and adopted by the narcissistic CEO,especially the CEO of the non-state-owned enterprises.Secondly,Companies with a higher degree of narcissism of the CEO will take a more aggressive approach to external investment.Also,special political association will cause the state-owned enterprises to pay more attention to how to achieve the rapid growth of the enterprise,compared with the growth through internal accumulation,it can more quickly access to resources through M&A.Therefore,compared with the non-state enterprises,the CEOs of the state-owned enterprises with higher degree of narcissism are more likely to choose the external investment.Conclusion seven:From the point of R&D Cooperation,the narcissistic characteristics of the CEO can affect the behavior of the CEO in the R&D Cooperation.The higher degree of narcissism of the CEO,the greater the level of cooperation the CEO has shown.At the same time,the higher degree of narcissism of the CEO,the lower the cooperation belief the CEO has shown.Furthermore,compared with the high degree of narcissism of the CEO,low degree of narcissism of the CEO is more sensitive to the equity allocation proportion of the R&D Cooperation results,and there is a significant difference in the amount of effort paid by different property rights allocation.In the implementation of the endogenous punishment mechanism,,in the case of congenital weakness,the CEO with the high degree of narcissism reveals the essence of the human exploiters and shows the aggression and revenge behavior of the partners.In the case of a priori advantage,the CEO with the high degree of narcissism has put on the cloak of hypocrisy,hiding the essence of human exploiters in order to show his positive image in R&D Cooperation.Conclusion eight:From the point of closed session of M&A,the degree of narcissism of mergers and sellers has significant influences on their acquisition execution force and bargaining power in closed session of M&A.In the aspect of acquisition execution force,if the merger has higher degree of narcissism,they would get stronger acquisition execution force,which will shorten the negotiation time,and if the seller has higher degree of narcissism,they also would get stronger acquisition execution force,which is a kind of greater resistance to the merger processes.In the aspect of bargaining power,if the CEO has higher degree of narcissism,they would get stronger bargaining power.For the highly narcissistic mergers,the core dimension of superiority promotes them to exploit the counterparty,which will bring a lower premium than others.For the highly narcissistic sellers,they will choose anti-exploitation in order to make up for the loss of superiority,which can win the higher bid price for their firm in closed session of M&A.Furthermore,compared with paying a higher premium for M&A success,the highly narcissistic CEO prefers to show his bargaining power and superiority by using a lower bid price rather than the success of the acquisition.Conclusion nine:The investment decisions made by narcissistic CEO are "mixed blessing",and the destructive and constructive contributions to the organization are both significant,but in general the negligence is in dominant.It should be pointed out that the higher degree of narcissism of the CEO,the effectiveness of the decision shows more situational dependence.That is to say,the decision made by the narcissistic CEO is not a"yes or no" proposition,and we should put it in a specific situation to study,analysis and judgment.