Narcissistic CEOs and zombie firms: Evidence from Europe

This study contributes to the growing body of research on the phenomenon of zombie firms by adopting a novel perspective that links corporate zombification to CEO narcissism. In line with the behavioral corporate governance approach and the Upper Echelons Theory (Hambrick & Mason, 1984), the analysis explores how CEO narcissism can influence a firm's likelihood of entering a state of zombification. In this study CEO narcissism is measured through a composite index based on unobtrusive indicators such as the size of the CEO's photograph in the annual report, the frequency of personal pronouns in shareholder letters, and the dimensions of the CEO's handwritten signature, following the methodologies proposed by Chatterjee and Hambrick (2007) and Ham et al. (2018). Zombie firms are identified according to McGowan, Andrews, and Millot (2018), using a dummy variable that takes the value of 1 if the Interest Coverage Ratio (ICR) is below 1 for at least three consecutive years during the observation period. Using a balanced panel dataset that includes 232 publicly listed firms across five European countries (United Kingdom, Italy, France, Germany, and Spain), covering more than 2,552 firm-year observations from 2013 to 2023, we find that CEO narcissism negatively impacts on zombie firms. Specifically, the results obtained support our hypothesis, highlighting a negative and statistically significant relationship between CEO narcissism and zombification, also confirmed by the positive relationships between CEO narcissism and indicators of financial strength such as Altman's z-score, ICR and ICR2. Our results, despite all the weaknesses of the case, contribute to extend the literature that recognises CEO narcissism as a positive acceptance for the company, especially in relation to financial distress.