Narcissism Theory

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2.2 Narcissism 2.2.1 Definition Narcissism can be a character trait28 but also a disorder29 if it is more extreme. As a disorder, the term ‘Narcissistic Personality Disorder’ (NPD) is used. It is defined by the American Psychiatric Association as a “pervasive pattern of grandiosity (in fan-tasy or behavior), need for admiration, and lack of empathy, beginning by early adult-hood and present in a variety of contexts”30. The diagnosis requires several symptoms to be present, such as fantasies of power and success, a high level of self-importance, the requirement of excessive admiration and a sense of entitlement. A diagnosis of NPD also means people suffering from can be exploitative towards and envious of others. A full list of the criteria…show more content…
I will come back to this in chapter 4.2 when I examine the influence of narcissism on the trade-off between disclosure and earnings management. Narcissism and overconfi-dence are positively correlated.33 In addition to overconfident people who just overes-timate their ability to predict the future which results in too much risk-taking, narcis-sists often also act opportunistically, they expect lots of attention34 and favour short-term rewards35. The relation between narcissism and self-esteem is harder to deter-mine. What has been shown is that narcissists’ self-esteem is more volatile, i.e. it de-creases or increases more than it does for less narcissistic people after failure or suc-cess.36 But narcissism and self-esteem are not clearly positively or negatively related as there are two forms of narcissism – vulnerable and grandiose. Vulnerable narcissists have a rather low self-esteem, but do have fantasies in which they see themselves as enhanced or ideal versions of themselves. They are also willing to exploit others for their own benefits. In contrast to grandiose narcissists who are rather self-confident, they hide these grandiose fantasies when interacting with other…show more content…
A high stock price decline after an earnings announcement can often be a reason for investors to accuse a company for having withheld important information. In order to avoid these legal costs a manager can preempt the disclosure of a large negative earnings surprise. Such voluntary disclosure makes it harder for plaintiffs to claim a manager withheld information as the plaintiff cannot know exactly when the manager obtained the bad news. It also limits the time period of nondisclosure and thereby the possible damages which can be claimed.51 The voluntary release of earnings forecasts can also be beneficial for a company. When there are changes in the environment of a company and managers release an adapted earnings forecast, they demonstrate their ability to anticipate future changes. The sooner they make it public, the higher their ability will be rated. The task of a manager is to anticipate such changes and to adjust the production accordingly. So the value of a company is determined by investors’ impression of how well a manager is able to do this. That means managers can signal their ability by simply releasing earnings fore-casts, no matter whether they result from good or bad news.52 But the motive for voluntary disclosure can also be of quite a different nature. Some companies extensively increase their level of disclosure prior to a stock offering in 49 Jensen & Meckling

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