The Dark Side of Manager Narcissism: Evidence on Target Level and Employee Dysfunctional Behavior

Abstract

We examine whether managers’ narcissism affects their decisions about performance targets and the dysfunctional behaviors of their subordinates. Dysfunctional behaviors occur when employees act to increase their performance and payoffs at the expense of their firm’s interests. Although dysfunctional behaviors are common and costly to firms, there is limited evidence of why these behaviors occur. Using a field-based dataset, we find that manager narcissism has both direct and indirect associations with employee dysfunctional behavior. In particular, managers with a higher degree of narcissism tend to set higher performance targets for their subordinates, which in turn lead to more employee behaviors that are dysfunctional. Besides this indirect association, we find manager narcissism also has a direct positive association with employee dysfunctional behavior. Our findings contribute to the management accounting literature and business practices by documenting that narcissism, a personality trait that is ubiquitous among managers, plays an important role in affecting managers’ control choices and the behaviors of lower-level employees.