The influence of the level of optimism and the level of narcissism of the CEO on the company's capital structure

Abstract

In this paper, we aim to estimate how both CEO optimism and CEO narcissism levels influence the capital structure of companies. These factors are considered as aspects of a CEO’s personality in psychological terms, as evidenced by (and in conjunction with) his or her public persona and business activity. We endeavor to estimate as accurately as possible the pertinent factors in this task by utilising qualitative and quantitative analytical approaches founded in linguistics and economic science. The methodological approach is based on a textual analysis and a panel regression approach. CEO announcement doc - umentation and annual reports are analysed to evaluate the relevant levels of optimism, while public pronouncements in CEO interviews are analysed to estimate the narcissism factor. Both approaches feature the “bag-of-words“ model, which measures, among other things, word frequency and multiplicity. The level of the optimism is calculated according to the quantity of positive and negative terms utilised using context-specific dictionaries. To evaluate the level of nar - cissism, indicators based on the number of singular and plural pronouns are employed. Additionally, the Gunning fog index is computed for all the texts, to further evaluate technical communication proficiency and associated conscien - tiousness. The positive and negative terms distribution is estimated using the Herfindahl–Hirschman index (HHI). As an additional indicator of the narcissism levels, the total number of the CEO photos per report is calculated. Additional variables considered include the percentage of women involved in the company’s board, CEO age, the length of service of the CEO, the average age of the board, the quantity of the managers in the company, and the firm’s financial indicators. The empirical base of this research is comprised of data relating to 225 Russian companies. By accounting for these variables, we aim to better estimate the influence of the estimated narcissism and optimism levels on decision making which affects the capital structure of these firms. Our findings indicate that the total number of CEO photos included per report is one of the key factors linked with optimism levels. The Gunning fog index is notably important in this context. The variables calculated with the HHI were found to be insignificant, and thus excluded from the model. The results of the research show that jointly with the CEO general characteristics it is reasonable to estimate the CEO personality features. The originality of the paper is primar - ily founded in the evaluation of CEO optimism and CEO narcissism levels on the Russian companies’ capital structure by the specific means of the advanced textual analysis utilized herein.