Dispositional sources of managerial discretion: CEO ideology, CEO personality, and firm strategies

Abstract

We investigate the dispositional sources of managerial discretion by theorizing that CEOs’ personality traits – narcissism and extraversion – will affect the extent to which firm strategies reflect their preferences. In a longitudinal study of Fortune 500 firms, we examine the moderating influence of CEO narcissism and extraversion on the relationship between CEO political ideology (on the conservatism-liberalism axis) and value-congruent firm strategies, corporate social responsibility (CSR) and downsizing. We find that extraversion strengthened the effect of CEO ideologies on both CSR and downsizing. In contrast, narcissism strengthened the effect of CEO liberalism on CSR but did not significantly moderate the effect of CEO conservatism on downsizing. In a supplementary study using primary data from working professionals, we further explore the distinct mechanisms associated with the two personality traits. We find that narcissism related strongly to individuals’ inflated perception of their discretion, whereas extraversion related to individuals’ issue selling ability. Overall, our study furthers research on managerial discretion by providing nuanced theory and evidence on innate sources of CEO influence, and on CEO political ideology by spotlighting the dispositional boundary conditions of its effects on firm strategies.