University of Isfahan Journal of Asset Management and Financing 2383-1189 14 2 2026 06 22 The Impact of Managerial Narcissism and Ability on the Cost of Debt The Impact of Managerial Narcissism and Ability on the Cost of Debt 85 108 29737 10.22108/amf.2025.144963.1976 FA Hasan Fattahi Nafchi Assistant Professor, Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran Puriya Zivari Kamran Ph.D. Student, Science and Research Branch, Islamic Azad University, Tehran, Iran Farshid Riahi Dorcheh M.A., Faculty of Agricultural Economics, University of Tehran, Tehran, Iran Journal Article 2025 04 18 This study examines the influence of managerial personality traits—specifically narcissism and managerial ability—on corporate debt costs. It is posited that financial institutions perceive narcissistic managers as riskier, resulting in higher borrowing costs. Conversely, managerial ability enhances decision-making quality and mitigates agency conflicts, thereby reducing the cost of debt. The analysis draws on data from 129 firms listed on the Tehran Stock Exchange between 2015 and 2022. Narcissism is measured using both signature size and a psychological signature index. The findings indicate a positive association between managerial narcissism and debt costs, while managerial ability exhibits a negative relationship. Notably, the interaction between narcissism and ability is statistically insignificant when narcissism is measured by signature size but becomes significant when using the psychological index. This suggests that managerial ability can attenuate the adverse effects of narcissism. The results further identify highly capable, non-narcissistic managers as the most effective profile for minimizing debt costs. Additional analyses reveal a U-shaped nonlinear relationship between narcissism and the cost of debt, as well as a linear inverse relationship between ability and debt cost. This study contributes to the existing literature by incorporating a psychology-based measure of narcissism and by exploring the joint impact of managerial traits. The findings offer meaningful implications for financial decision-making and credit risk assessment. Keywords: Managerial Narcissism, Managerial Ability, Cost of Debt. JEL Classification: G32, D22, M12, D91. Introduction Recent literature highlights growing concerns regarding executive narcissism and its impact on firm outcomes, particularly the cost of debt. While narcissistic traits may promote innovation and attract market attention, they can also exacerbate agency conflicts and increase risk-taking behavior, thereby elevating external financing costs. In contrast, managerial ability is widely regarded as a mitigating factor, given its role in enhancing strategic decision-making and promoting transparent financial reporting. However, prior research has produced mixed results, particularly in emerging markets such as Iran. This study aims to reconcile these divergent findings by examining whether managerial ability can offset the detrimental effects of narcissism on the cost of debt. It employs a psychological measure of narcissism alongside the conventional signature size metric and incorporates a scenario-based framework to classify managers into distinct profiles—such as capable non-narcissists and incapable narcissists. Additionally, the study explores the potential for nonlinear dynamics in the relationship between narcissism and debt cost, thereby offering a more nuanced understanding beyond the traditionally assumed linear model. Materials & Methods This study is applied and correlational in nature, utilizing data from 129 companies listed on the Tehran Stock Exchange between 2015 and 2022. CEO narcissism is assessed using two methods: (1) the natural logarithm of the CEO’s signature area, measured via ImageJ software, and (2) a psychological index based on signature characteristics—such as complexity, presence of vertical lines, inclusion of the CEO’s name, and counterclockwise orientation—scored on a scale from 0 to 4. Managerial ability is evaluated using the Demerjian DEA-based model, where inputs include cost of goods sold (COGS), selling, general and administrative expenses (SG&A), fixed assets, and intangible assets, with sales serving as the output. The efficiency score derived from this model is then regressed on firm-specific variables, and the residuals are used as a proxy for managerial ability. The cost of debt (COD) is calculated by dividing interest expense by total liabilities. Panel data regressions with robust standard errors are employed, controlling for firm size, leverage, profitability, board independence, CEO tenure, CEO duality, and both industry and year fixed effects. Findings The results indicate that managerial narcissism is associated with an increase in the cost of debt, whereas managerial ability has a mitigating effect, leading to lower debt costs. However, the interaction between narcissism and managerial ability is not statistically significant when narcissism is measured by signature size. In contrast, when narcissism is assessed using a psychological signature index, the interaction becomes significant, suggesting that managerial ability can offset the adverse effects of narcissism on the cost of debt. Furthermore, when managers are categorized into distinct profiles—capable non-narcissists, incapable narcissists, and others—capable non-narcissistic managers emerge as the most effective in minimizing debt costs. Additional analyses reveal a U-shaped nonlinear relationship between managerial narcissism and the cost of debt, while managerial ability maintains a consistently negative linear association with debt costs. Discussion and Conclusion The findings highlight the complex and sometimes opposing roles of managerial traits in shaping corporate financing outcomes. While narcissism is often viewed as detrimental, it may offer certain advantages at moderate levels by fostering confidence and promoting innovation. However, excessive narcissism amplifies risk-taking and agency conflicts, ultimately leading to higher debt costs. In contrast, managerial ability consistently mitigates financial risk through enhanced decision-making and greater transparency. The significant interaction between the two traits suggests that managerial ability can buffer the negative effects of narcissism. The use of a psychological index to measure narcissism adds a nuanced perspective, uncovering associations that conventional metrics may overlook. These insights underscore the importance for policymakers, investors, and creditors to consider both psychological and competence-based evaluations of executives when assessing corporate risk and governance quality. Overall, the study contributes to the literature on behavioral finance and managerial decision-making in emerging markets, emphasizing the utility of multidimensional executive profiling in financial analysis. This study examines the influence of managerial personality traits—specifically narcissism and managerial ability—on corporate debt costs. It is posited that financial institutions perceive narcissistic managers as riskier, resulting in higher borrowing costs. Conversely, managerial ability enhances decision-making quality and mitigates agency conflicts, thereby reducing the cost of debt. The analysis draws on data from 129 firms listed on the Tehran Stock Exchange between 2015 and 2022. Narcissism is measured using both signature size and a psychological signature index. The findings indicate a positive association between managerial narcissism and debt costs, while managerial ability exhibits a negative relationship. Notably, the interaction between narcissism and ability is statistically insignificant when narcissism is measured by signature size but becomes significant when using the psychological index. This suggests that managerial ability can attenuate the adverse effects of narcissism. The results further identify highly capable, non-narcissistic managers as the most effective profile for minimizing debt costs. Additional analyses reveal a U-shaped nonlinear relationship between narcissism and the cost of debt, as well as a linear inverse relationship between ability and debt cost. This study contributes to the existing literature by incorporating a psychology-based measure of narcissism and by exploring the joint impact of managerial traits. The findings offer meaningful implications for financial decision-making and credit risk assessment. Keywords: Managerial Narcissism, Managerial Ability, Cost of Debt. JEL Classification: G32, D22, M12, D91. Introduction Recent literature highlights growing concerns regarding executive narcissism and its impact on firm outcomes, particularly the cost of debt. While narcissistic traits may promote innovation and attract market attention, they can also exacerbate agency conflicts and increase risk-taking behavior, thereby elevating external financing costs. In contrast, managerial ability is widely regarded as a mitigating factor, given its role in enhancing strategic decision-making and promoting transparent financial reporting. However, prior research has produced mixed results, particularly in emerging markets such as Iran. This study aims to reconcile these divergent findings by examining whether managerial ability can offset the detrimental effects of narcissism on the cost of debt. It employs a psychological measure of narcissism alongside the conventional signature size metric and incorporates a scenario-based framework to classify managers into distinct profiles—such as capable non-narcissists and incapable narcissists. Additionally, the study explores the potential for nonlinear dynamics in the relationship between narcissism and debt cost, thereby offering a more nuanced understanding beyond the traditionally assumed linear model. Materials & Methods This study is applied and correlational in nature, utilizing data from 129 companies listed on the Tehran Stock Exchange between 2015 and 2022. CEO narcissism is assessed using two methods: (1) the natural logarithm of the CEO’s signature area, measured via ImageJ software, and (2) a psychological index based on signature characteristics—such as complexity, presence of vertical lines, inclusion of the CEO’s name, and counterclockwise orientation—scored on a scale from 0 to 4. Managerial ability is evaluated using the Demerjian DEA-based model, where inputs include cost of goods sold (COGS), selling, general and administrative expenses (SG&A), fixed assets, and intangible assets, with sales serving as the output. The efficiency score derived from this model is then regressed on firm-specific variables, and the residuals are used as a proxy for managerial ability. The cost of debt (COD) is calculated by dividing interest expense by total liabilities. Panel data regressions with robust standard errors are employed, controlling for firm size, leverage, profitability, board independence, CEO tenure, CEO duality, and both industry and year fixed effects. Findings The results indicate that managerial narcissism is associated with an increase in the cost of debt, whereas managerial ability has a mitigating effect, leading to lower debt costs. However, the interaction between narcissism and managerial ability is not statistically significant when narcissism is measured by signature size. In contrast, when narcissism is assessed using a psychological signature index, the interaction becomes significant, suggesting that managerial ability can offset the adverse effects of narcissism on the cost of debt. Furthermore, when managers are categorized into distinct profiles—capable non-narcissists, incapable narcissists, and others—capable non-narcissistic managers emerge as the most effective in minimizing debt costs. Additional analyses reveal a U-shaped nonlinear relationship between managerial narcissism and the cost of debt, while managerial ability maintains a consistently negative linear association with debt costs. Discussion and Conclusion The findings highlight the complex and sometimes opposing roles of managerial traits in shaping corporate financing outcomes. While narcissism is often viewed as detrimental, it may offer certain advantages at moderate levels by fostering confidence and promoting innovation. However, excessive narcissism amplifies risk-taking and agency conflicts, ultimately leading to higher debt costs. In contrast, managerial ability consistently mitigates financial risk through enhanced decision-making and greater transparency. The significant interaction between the two traits suggests that managerial ability can buffer the negative effects of narcissism. The use of a psychological index to measure narcissism adds a nuanced perspective, uncovering associations that conventional metrics may overlook. These insights underscore the importance for policymakers, investors, and creditors to consider both psychological and competence-based evaluations of executives when assessing corporate risk and governance quality. Overall, the study contributes to the literature on behavioral finance and managerial decision-making in emerging markets, emphasizing the utility of multidimensional executive profiling in financial analysis.

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