Corporate governance, CEO characteristics and earnings management: Evidence from UK listed companies

Abstract

This research a novel contribution by explicitly quantifying the impact of behavioural CEO traits, specifically greed and narcissism on earnings management, extending traditional agency theory to a behavioural governance framework within a UK institutional setting. The findings demonstrate that CEOs exhibiting higher levels of greed and narcissism are significantly more likely to engage in earnings management, even in firms that formally comply with established corporate governance codes. This evidence indicates that structural governance compliance alone is insufficient to constrain opportunistic financial reporting when behavioural risks at the executive level are present. From a policy perspective, the results suggest that UK regulators such as the Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA) should move beyond a narrow focus on formal board structures and strengthen the behavioural dimension of corporate governance oversight. Specifically, governance codes and stewardship guidelines could be enhanced by encouraging greater transparency around CEO incentive intensity, power concentration, and behavioural risk indicators, particularly in firms with high discretionary reporting environments. The findings also support closer regulatory scrutiny of remuneration schemes that amplify short-term performance incentives for CEOs displaying behavioural traits associated with opportunism. From a practical governance standpoint, the research provides clear recommendations for boards and nomination committees. CEO selection, evaluation, and succession planning should explicitly incorporate behavioural screening alongside traditional measures of experience and competence. Boards should apply heightened monitoring during early CEO tenure and when behavioural indicators of greed or narcissism are present, for example through stronger audit committee engagement, such as, more frequent performance reviews. Furthermore, separating the roles of CEO and chair and strengthening audit committee independence are shown to be particularly effective in mitigating the earnings management risks associated with such behavioural traits. For institutional investors, especially foreign institutions with active stewardship mandates, the findings highlight the value of integrating behavioural CEO risk assessments into engagement strategies, voting decisions, and portfolio monitoring. Recognising greed and narcissism as systematic risk factors can improve stewardship effectiveness and enhance long-term investment value. Overall, this research contributes to original UK-based empirical evidence demonstrating that CEO greed and narcissism are economically meaningful drivers of earnings management, and that effective governance requires a behaviourally informed policy and monitoring approach, rather than reliance on formal compliance alone.