CEO psychological biases, firm performance and alternative mechanisms in transition economies: Evidence from Malaysia

Figures & data

Table 1. Descriptive statistics.

	Mean	Maximum	Minimum	S/D
LIVA	0.038	9.765	−7.689	0.707
Hubris	1.579	1.974	0.103	0.418
Narcissism	0.796	1.376	0.216	0.339
Market intensity	7.463	65.942	−96.692	13.212
ROA	0.084	37.304	−18.214	19.884
Strategic Alliance	0.063	1.000	0.000	0.096
News Articles	1149.422	1390.467	694.726	−22.135
Board-independence	0.239	0.845	0.191	0.160
CEO-ownership	0.096	0.362	0.002	0.099
Financial leverage	0.438	35.142	0.057	5.721
Foreign-ownership	0.060	0.796	0.000	6.296
Group-affiliation	0.119	1.000	0.000	0.192
Government-ownership	0.057	1.000	0.000	0.245
Gender critical mass	0.138	1.000	0.000	0.173
Gender-diversity	0.798	1.000	0.000	0.133
CEO-tenure	6.142	21.298	3.000	3.956
CEO-chair	0.211	1.000	0.000	0.164
Firm-age	47.797	57.809	21.298	4.153
Size	6.897	11.162	2.605	2.067

Table 2. CEO psychological biases and LIVA.

	Column-1		Column-2
	Coefficient	t-statistics	Coefficient	t-statistics
LIVA (t-1)	0.660***	4.344	0.701***	4.241
CEO-narcissism	−0.212**	−2.232	−0.214**	−2.553
CEO hubris	−0.097*	−1.791	−0.099*	−1.733
CEO-chair	−0.056*	−1.922	−0.057*	−1.919
CEO-ownership	0.093**	2.213	0.090***	2.254
CEO-tenure	0.083*	1.873	0.088*	1.860
CEO gender	0.008	1.199	0.019	1.218
Other control factors
Acquisition	0.089**	2.349	0.091**	2.312
Marketing intensity	0.251**	2.338	0.254**	2.254
Financial leverage	−0.005	−1.183	−0.005	−1.208
Articles	0.001	0.911	0.001	0.969
Firm-age	0.155**	2.121	0.157**	2.186
Size	0.094**	2.021	0.096**	2.196
Interaction terms
CEO-narcissism × CEO-chair			−0.260***	−3.124
CEO-hubris × CEO-chair			−0.012**	−2.185
CEO-narcissism × CEO-ownership			−0.267**	−2.171
CEO-hubris × CEO-ownership			0.188**	2.250
CEO-narcissism × CEO-tenure			−0.102*	−1.911
CEO-hubris × CEO-tenure			−0.043	−1.309
CEO-narcissism × CEO-gender			−0.314**	−2.097
CEO-hubris × CEO-gender			−0.144**	−2.335
Year-effects	Yes		Yes
Industry-effects	Yes		Yes
Arellano-Bond (AR1)	Pr > z=.003		Pr > z = 0.008
Arellano-Bond (AR2)	Pr > z=.096		Pr > z = 0.166
Sargan test (Chi-square, p-value)	4.71 (p = .000)		6.55 (p = .001)

Table 2 presents the findings of baseline regression models examining the impacts of CEO psychological biases on firm performance. Total number of observations is 6720. In column 1, we present the findings without interaction terms. In column 2, the findings of the main models (including interaction terms) are presented. Industry and year-fixed effects are included in the regressions. ***, ** and * indicate significance at the 1%, 5% and 10% levels, respectively.

Table 3. CEO controlling mechanisms.

	1	2	3	4	5	6
LIVA (t − 1)	0.618***	0.599***	0.524***	0.493***	0.498***	0.508***
CEO-narcissism	−0.206**	−0.189**	−0.180**	−0.204**	−0.201**	−0.174**
CEO hubris	−0.097*	−0.112*	−0.097*	−0.092*	−0.097*	−0.122*
Interaction terms
CEO-narcissism × board-independence	−0.106*
CEO hubris × board-independence	−0.010
CEO-narcissism × gender critical mass		0.299**
CEO hubris × gender critical mass		0.162**
CEO-narcissism × foreign-ownership			0.131**
CEO hubris × foreign-ownership			0.096**
CEO-narcissism × government ownership				−0.168**
CEO hubris × government ownership				−0.097*
CEO-narcissism × strategic alliance					−0.093*
CEO hubris × strategic alliance					−0.010*
CEO-narcissism × group-affiliation						0.248***
CEO hubris × group-affiliation						0.110***
Main variables
Board-independence	0.125**
Gender critical mass		0.166***
Foreign-ownership			0.100***
Government ownership				0.004
Strategic alliance					0.066*
Group-affiliation						0.206***
Control factors
Acquisition	0.077**	0.086**	0.084**	0.083**	0.081**	0.079**
Marketing intensity	0.216**	0.242**	0.237**	0.232**	0.226**	0.221**
Financial leverage	−0.004	−0.005	−0.006	−0.005	−0.006	−0.004
Articles	0.001	0.002	0.001	0.001	0.003	0.001
Firm-age	0.134**	0.150**	0.147**	0.143**	0.140**	0.137**
Size	0.082**	0.091**	0.089**	0.087**	0.085**	0.084**
Year-effects	Yes	Yes	Yes	Yes	Yes	Yes
Industry-effects	Yes	Yes	Yes	Yes	Yes	Yes
Arellano-Bond (AR1)	Pr > z = 0.001	Pr > z = 0.009	Pr > z = 0.001	Pr > z = 0.003	Pr > z = 0.004	Pr > z = 0.004
Arellano-Bond (AR2)	Pr > z = 0.122	Pr > z = 0.131	Pr > z = 0.122	Pr > z = 0.185	Pr > z = 0.192	Pr > z = 0.1586
Sargan test (Chi-square, p-value)	4.61 (p = .001)	5.20 (p = .001)	5.31 (p = .001)	5.03 (p = .001)	4.28 (p = .001)	3.99 (p = .001)

Table 3 presents the findings of controlling mechanisms and their roles. Total number of observatiosn are 6,720. We use separate regression for each interaction term for more clarity in findings. Including so many interaction terms may produce biased results. Industry and year-fixed effects are included in the regressions. ***, ** and * indicate significance at the 1%, 5% and 10% levels, respectively.

Table 4. Substitution effects.

	Column 1		Column 2		Column 2
	Coefficient	t-stat	Coefficient	t-stat	Coefficient	t-stat
LIVA (t-1)	0.790***	5.325	0.825***	5.317	0.790***	5.059
CEO-narcissism	−0.192**	−2.149	−0.190**	−1.118	−0.192**	−2.196
CEO hubris	−0.108*	−1.725	−0.092*	−1.758	−0.108*	−1.662
Substitution effects
gender-critical mass × foreign-ownership	0.060*	1.806
gender-critical mass × group-affiliation			0.052**	2.171
Group-affiliation × foreign-ownership					−0.011	−1.180
Main variables
Gender critical mass	0.321***	4.270	0.301***	4.186	0.263***	4.447
Foreign-ownership	0.169**	2.675	0.155**	2.606	0.201**	2.110
Group-affiliation	0.174**	2.228	0.153**	2.237	0.165**	2.183
Control factors	Included		Included		Included
Year-effect	Yes		Yes		Yes
Industry-effect	Yes		Yes		Yes
Arellano-Bond (AR1)	Pr > z = 0.000		Pr > z = 0.000		Pr > z = 0.000
Arellano-Bond (AR2)	Pr > z = 0.337		Pr > z = 0.289		Pr > z = 0.196
Sargan test (Chi-square, p-value)	6.51 (p = .001)		5.05 (p = .001)		7.11 (p = .001)

We regress each interaction term separately. ***, ** and * indicate significance at the 1%, 5% and 10% levels, respectively.

Total number of observatiosn are 6,720.

Table

Variables	Measurement
LIVA	The complete database is available on WRDS (Wharton Research Data Services) and the website www.liva-measure.com.
Market intensity	Market intensity is measured as the ratio of advertising expenses to total sales.
ROA	Profit divided by total assets.
Acquisition	The number of acquisitions represents the number of the previous year’s investments.
Strategic Alliance	A dummy variable equals one if a firm has a strategic alliance; otherwise, it is 0.
Articles	The count of news articles covering CEOs in a specific year.
Board-independence	The ratio of independent to dependent directors
CEO-ownership	Percentage of shares held by CEO
Financial leverage	Debt to debt-to-equity ratio of the firm
Foreign ownership	Percentage of shares held by foreign
Group affiliation	A dummy variable equals 1 if a firm has group affiliation; otherwise, it is 0.
Government ownership	Percentage of shares held by government
Gender critical mass	A dummy variable equals 1 if a firm has three or more females on its corporate board; otherwise, 0.
Gender diversity	A dummy variable equal to 1 has a female on its corporate board; otherwise, 0.
CEO tenure	Number of years CEO serving in a specific firm
CEO-chair	The dummy variable equals 1 if the CEO exercises dual roles; otherwise, 0.
Firm age	Difference between a year of incorporation and a year of observation
Size	Log of total assets

Table

Description	Observations
Total firm’s year observations (784 firmsx12 years)		9408
Less Financial firm-year observations (39 firmsx12 years)	(468)
Delisted firm-year observations during the period	(734)
Firms with CEO turnover of less than three years-observations	(284)
Firms with missing data	(1202)	(2688)
Total number of observations (560 firmsx12 years)		6720
Gender diversity Firm year-observations	5288
Gender critical mass firm year-observations	914
CEO- chair firm year-observations	1398
Strategic alliance firm year-observations	416
Group-affiliated firm year-observations	786

The Table presents the criteria used to finalize the sample. We excluded all financial firms. We further excluded CEO turnover cases for less than three years. Additionally, we showed gender-critical mass firms’ year-observations for the sample period.