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CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO
Power and Board Vigilance

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DOI: 10.1007/s10551-015-2997-2

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CEO Hubris and Firm Performance:
Exploring the Moderating Roles of CEO
Power and Board Vigilance

Jong-Hun Park, Changsu Kim, Young

Kyun Chang, Dong-Hyun Lee & Yun-Dal
Sung

Journal of Business Ethics

ISSN 0167-4544

J Bus Ethics
DOI 10.1007/s10551-015-2997-2

1 23
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 Author's personal copy
J Bus Ethics
DOI 10.1007/s10551-015-2997-2

CEO Hubris and Firm Performance: Exploring the Moderating

Roles of CEO Power and Board Vigilance
Jong-Hun Park1 • Changsu Kim1 • Young Kyun Chang1 •

Dong-Hyun Lee1 • Yun-Dal Sung1

Received: 2 March 2015 / Accepted: 14 December 2015

 Springer Science+Business Media Dordrecht 2015

Abstract This study focuses on CEO hubris and its Introduction

detrimental effect on corporate financial performance along
with an examination of critical corporate governance High-profile ethical failures of CEOs are nothing new.
contingencies (CEO power and board vigilance) that may John Thain spent $1.2 million on remodeling his Merrill
moderate the negative effect. From 654 observations of 164 Lynch office during the 2008 financial meltdown in the
Korean firms over the years 2001–2008, we found that United States. Richard Fuld was enjoying a 6000-square-
CEO power exacerbated the negative effect of CEO hubris foot luxury condo while he was driving Lehman Brothers
on corporate financial performance, whereas board vigi- into bankruptcy. And Lloyd Blankfein is still the highest-
lance mitigated it. This study provides empirical evidence paid banker in the world, even though he admitted that
that entrenchment problems arising from CEO hubris Goldman Sachs deliberately sold unprecedentedly risky
would be exacerbated as CEOs become more powerful, but bonds to its clients (Chamorro-Premuzic 2014). Such a
weakened as board of directors become more vigilant. reckless self-affirming characteristic of CEO has been
Theoretical contributions and practical implications will be often conceptualized as CEO hubris, defined as CEO’s
discussed. exaggerated self-confidence or inflated pride (Hayward and
Hambrick 1997).
Keywords CEO hubris
CEO power
Board vigilance
Among many CEO characteristics, CEO hubris deserves
Korea to receive more scholarly attention. Hubristic CEOs could
be most devastating, since they have a strong conviction
that they can do no wrong while they misbehave. Notably,
Malmendier and Tate (2008) pointed out that hubristic
CEOs could jeopardize the firm, since they have an
unshakeable belief that they are best acting in the interest
of shareholders even when they engage in value-destroying
& Young Kyun Chang activities.
changy@sogang.ac.kr
Given the significance of executive hubris, extant
Jong-Hun Park research has explored what makes CEOs hubristic. For
johnpark@sogang.ac.kr
instance, Hayward and Hambrick (1997) suggested that
Changsu Kim past organizational success, media praises, and a strong
cskim@sogang.ac.kr
perception of self-importance lead executives to be
Dong-Hyun Lee hubristic. Hiller and Hambrick (2005) claimed that exec-
dh21004@gmail.com
utives with a higher level of core self-evaluation (i.e.,
Yun-Dal Sung hyper CSE) are most likely to be hubristic. Kroll et al.
sungyd@sogang.ac.kr
(2000) proposed that hubris could originate from narcis-
1
Sogang Business School, Sogang University, 35 Baekbeom-ro, sism, series of success, uncritical acceptance of accolades,
Mapo-gu, Seoul 04107, Korea and exemption from the rules.

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 Author's personal copy
On the other hand, other scholars have examined how
hubristic CEOs behave or make strategic decisions. Li and
Tang (2010) argued that hubristic CEOs tend to make a
risky decision since they overestimate their own problem-
solving capabilities, or underestimate the required resour-
ces and uncertainties. Hiller and Hambrick (2005) pro-
posed that hubristic CEOs are likely to make a non-
comprehensive, hasty, and less decentralized decisions.
Petit and Bollaert (2012) noted that hubristic CEOs could
make an unethical decision as hubris can be seen as the
‘‘vice of tyrant’’ (p. 269).
Despite the accumulated knowledge of executive
hubris, existing research still has room for advancement.
First, although existing works have explored the rela-
tionship between CEO hubris and various corporate
outcomes, surprisingly little research has directly
explored the relationship between CEO hubris and cor-
porate financial performance. Given the immediate
implication, corporate financial performance is a key
agenda of hubris research that needs to be explored. This
study tests the relationship between CEO hubris and
corporate financial performance in a theoretically and
empirically meaningful way. To this end, we employ
managerial entrenchment theory (Shleifer and Vishny
1989; Walsh and Seward 1990) as an overarching the-
oretical framework.
Second, previous works have theorized hubris as an
‘‘individual’’ characteristic, yet ignored the power dynamic
between top executives and corporate board in a decision-
making context. This claim is legitimate because corporate
decision is most likely the result of interaction between top
executives and board of directors (Boyd et al. 2011). As a
way of capturing such power dynamic, this study intro-
duces the corporate governance contingency (Finkelstein
et al. 2009) to see how CEO hubris interacts with gover-
nance contingency to affect corporate financial
performance.
Lastly, existing research has been conducted mostly in
Western contexts (Hambrick and Finkelstein 1987;
Hayward and Hambrick 1997). Only few studies have
been done in Eastern contexts (e.g., Li and Tang 2010).
Since in general the country context involves the con-
cern for external validity of findings, it is important to
explore different country contexts to substantiate whe-
ther the previous findings can be generalized. In this
regard, this study focuses on hubris of top executives in
Korea, which have long been criticized by public with
regard to their ‘‘tyrant-like’’ unethical and narcissistic
leadership under the Chaebol system. As such, it is
particularly meaningful to investigate how the corporate
governance system should be structured to monitor
hubristic CEOs and lessen their negative impact on firm
performance in Korea.
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J.-H. Park et al.
In summary, this study examines the relationship between
CEO hubris and corporate financial performance, and the
moderating effect of corporate governance contingencies on
this relationship in the Korean context. In considering power
dynamic between a CEO and board members, this study
tries to contribute to hubris literature by investigating an
important yet underexplored prediction that corporate gov-
ernance structure can help define boundary conditions of the
effects of CEO hubris on corporate outcomes, and by
examining if such relationships can be generalized to non-
Western contexts (i.e., Korea). Figure 1 illustrates the con-
ceptual linkage among focal variables of this study.
Theory and Hypotheses
The Concept of CEO Hubris
Hubris, as a human cognitive bias, is one’s exaggerated
self-confidence or pride. According to Hayward and
Hambrick (1997), the notion of hubris originally derives
from Greek mythology in which it was considered man’s
capital sin (Wiener 1973). The old myth described that
those who are extremely confident and arrogant were
harshly punished by the gods (Grimal 1986). The first
seminal documentation of hubris was made by Richard
Roll (1986) who explained why CEOs are willing to make
corporate acquisitions by large scale, despite the sufficient
evidence that corporations generally suffer rather than
benefit from such transactions. Hayward and Hambrick
(1997) extended the Richard Roll’s speculation by exam-
ining how much CEOs pay pre-bid market prices for
acquisitions. This measure of acquisition premium was
assumed to reflect the acquiring CEO’s assessment of how
much more valuable the acquired company would be if it
were under his/her administration. Without any direct
CEO Power
- CEO Tenure
- CEO Ownership
CEO Hubris
- Media praises Corporate Financial
- Award records Performance
- Overconfidence
Board Vigilance
- Non-duality
- Outside Director Ratio
Fig. 1 A conceptual model of the present study
 Author's personal copy
CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO Power and Board…
measure of CEO hubris, Hayward and Hambrick intro-
duced three sources of hubris: (1) the company’s recent
performance under the CEO, (2) recent media praise for the
CEO, and (3) the ratio of the CEO’s pay relative to the
second highest-paid executive. The first two were situa-
tional conditions that may cause hubris, whereas the third
measure may capture the CEO’s sense of self-importance
central to any hubristic individual.
Conceptually, hubris is distinguished from other neigh-
borhood constructs, such as self-esteem, core self-evalua-
tion, or narcissism (Chatterjee and Hambrick 2007; Hiller
and Hambrick 2005). Self-esteem refers to an individual’s
overall self-acceptance, self-liking, or self-respect (Harter
1990; Baumeister et al. 1996). Although self-esteem aligns
with hubris in terms of the aspect of self-admiration, self-
esteem lacks core features of arrogance or sense of enti-
tlement (Chatterjee and Hambrick 2007). Since core self-
evaluation contains the construct of self-esteem itself, core
self-evaluation seems similar to hubris. However, core self-
evaluation only involves the hubristic feature when self-
evaluation reaches the ‘‘hyper’’ level (Hiller and Hambrick
2005). Narcissism differs from hubris in that while hubris
is a psychological state brought on by some combination of
confidence-evoking stimuli and one’s cognitive tendencies,
narcissism can be better positioned as a strong dispositional
trait (Emmons 1984; Raskin and Terry 1988).
CEO Hubris and Firm Performance
It has long been a topic of interest how hubristic top
executives behave. In general, there exist two competing
views toward CEO hubris: heroic versus pessimistic view.
The heroic view maintains that dominant, powerful CEOs
can be ‘‘heroes or saviors’’ (Tang et al. 2011, p. 1480),
since they may help top management teams get the com-
plicated decision-making process done in a timely and
efficient fashion (Khurana 2002; Kisfalvi and Pitcher 2013)
or often suggest deviant strategies that may yield superior
performances (Tang et al. 2011). Indeed, a world has wit-
nessed hubristic yet successful CEOs in the broader areas
of uncertain, fast-changing, highly competitive industries.
For instance, despite their unbeatable success, Steve Jobs,
Jeff Bezos, Donald Trump, and others have been known to
be hubristic leaders through disclosures in many biogra-
phies and media presses (e.g., Gergen 2000; Isaacson
2011).
On the other hand, the pessimistic view argues that
hubristic CEOs are generally harmful because of their
extreme level of confidence and conviction. Hiller and
Hambrick (2005) conceptualized the notion of executive
hubris, arguing that overconfident CEOs tend to use up
significant amounts of available cash to invest in many
projects that they should not be invested, since such CEOs
tend to overestimate their personal capabilities to yield
success. Li and Tang (2010) argued that hubristic CEOs
tend to make a risky decision since they overestimate their
own problem-solving capabilities, or underestimate the
required resources and uncertainties. Hiller and Hambrick
(2005) proposed that hubristic CEOs are likely to make a
narrow, careless, and self-centered decisions. Taken toge-
ther, previous works have not reached the solid conclusion
whether hubristic CEOs are contributive or detrimental to
corporate success.
To resolve the existing tension from the mixed findings,
this study attempts to contextualize the scope of theorizing
for the effect of CEO hubris on the firm performance. By
integrating the managerial entrenchment theory (Shleifer
and Vishny 1989) with an account of context-specific
institutionalism (Sundaramurthy 2000), we assume that
hubristic CEOs are likely to become entrenched, but
whether such entrenchment could serve to corporate out-
comes positively or negatively depends on the context in
which firms are instituted.
CEO’s hubris can be formed through past achievement,
frequent public recognition, or extremely optimistic cog-
nitive mindset for the self (Hayward and Hambrick 1997;
Hiller and Hambrick 2005; Malmendier and Tate 2008). If
individuals are empowered by past achievements, recog-
nition, or self-confidence, they are likely to have a strong
motivation to stay longer in their current position and keep
themselves from any challenges that threaten their presti-
gious status and identity. Thus, hubris-infected CEOs are
likely to become entrenched in the organization, which can
be formally defined as the executives’ maneuvers to protect
their position or current status by increasing their influ-
ences over governance/market controls (Shleifer and
Vishny 1989).
The existing literature further suggests that whether
entrenched CEOs are contributive or detrimental to the firm
depend upon the contexts that involve the external capital
market or internal corporate structure (Sundaramurthy
2000). On one hand, entrenched CEOs may enhance cor-
porate value. Under the highly active capital market, firms
confront tremendous pressures for the performance. When
underperformed, firms often become a victim of takeover.
Since the most important concern for the entrenched CEOs
is to protect their prestigious position in the organization,
such CEOs try to focus their attention on enhancing cor-
porate earnings and values in order to protect themselves
from external pressures and threats. As such, entrenched
CEOs in such contexts are expected to make best effort to
increase corporate value.
On the contrary, entrenched CEOs can hurt corporate
value in the context in which the capital market does not
assign substantial pressure to the firm performance. Under
this condition, since the entrenched CEOs still want to
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J.-H. Park et al.

preserve their prestigious status, yet are relatively free from such, given the relatively weak capital market pressure and
external pressures, they are likely to make an excessive unique corporate structure (i.e., Chaebol), it is reasonable to
investment for their own ‘‘self’’ so as to make their propose that hubristic CEOs should be entrenched to detri-
replacement extremely costly (Morck et al. 1990; Shleifer mentally affect a firm’s performance in Korea. Therefore, we
and Vishny 1989). Then such ‘‘manager-specific’’ invest- develop our baseline hypothesis as follows:
ments allow CEOs to exploit corporate resources or exer-
Hypothesis 1 CEO hubris will be negatively associated
cise a greater power even if such investments are value-
with a firm’s financial performance in Korea.
destroying ones (Shleifer and Vishny 1989). In fact,
Malmeidier and Tate (2005) argued that hubristic CEOs
The Moderating Role of Corporate Governance
increase the likelihood of investment in ‘‘pet projects’’ that
Contingencies
hurts organizational bottom line, which can be seen as a
strong indication of entrenchment. Relatedly, hubristic
If CEO hubris is associated with poor firm performance, then
CEOs may also become entrenched by neutralizing the
what factors can alleviate or exacerbate its performance
governance controls imposed by principals. The entrenched
consequence? We assume corporate governance contin-
CEOs not only make themselves more valuable than any
gencies, which capture the power dynamics between a CEO
other alternatives, but they also involve making corporate
and board members, to be key moderating factors. Accord-
control mechanisms more expensive to use. As a result,
ing to managerial entrenchment theory again, entrenchment
such entrenched CEOs can wield enormous power without
is a managerial maneuver to protect the position or current
check and balance (Shleifer and Vishny 1989), which can
status of hubristic CEOs by increasing their discretionary
make firms financially suffer.
power over governance/market controls. As one way of
Integrating managerial entrenchment theory with the
entrenchment, top executives tend to try to neutralize the
context-specific institutionalism elaborated above, the
governance controls imposed by principals (Walsh and
present study hypothesizes that hubris leads CEOs to
Seward 1990). However, since corporate decision is most
become entrenched, and such entrenchment is negatively
likely the result of interaction between top executives and
associated with the firm performance in the Korean con-
board of directors (Boyd et al. 2011), an entrenched CEO’s
text. First of all, Korean firms have not been frequently
neutralization tactics can be often checked by governance
exposed to an intense pressure from capital market.1 Under
contingencies. In this regard, power dynamic is a critical
the context of such a low external pressure, entrenched
underlying mechanism through which hubris-infected CEO
CEOs are expected to pursue only their survival and self-
entrenchment affects the firm performance.
interests, which can make firms financially suffer. More-
The notion of power dynamic suggests that corporate
over, a number of CEOs in Korea have been ‘‘inner-circle’’
governance contingencies involve a set of power trade-offs
members of founding families under the conglomerate
between CEOs and board members (Westphal and Zajac
structure known as Chaebol (Chang 2003). One of the main
1995) and focus not only on the functioning of board vigi-
concerns for such CEOs is to protect founding families’
lance, but also on the power of CEOs vis-à-vis the board
wealth and heritage from any kind of external threats. In
(Finkelstein et al. 2009). As CEOs become entrenched, they
compensating for maximizing the founding families’
may use power to pursue their own interests at the share-
wealth, a strong patronage of founding families is granted
holders’ expenses. Circumstances may arise, however, in
to such CEOs, therefore they can exercise an extraordinary
which the board of directors is particularly vigilant, poten-
power even when strategic decisions result in value
tially restraining CEOs from pursuing their managerial
destroying to the minority shareholders. This kind of
interests (O’Sullivan 2009). In keeping with our base argu-
behavior has been echoed in a number of corporate gov-
ment regarding the CEO hubris and its negative performance
ernance research in Korea (e.g., Chang 2003), and often
consequence, we thus assume CEO power as an enabler and
described with a notion of principal–principal problem in
board vigilance as a constraint of CEO hubris.
the general management literature (e.g., La Porta et al.
1999; Morck and Yeung 2003).
Reinforcing Effect of CEO Power
Taken together, whether CEO hubris is positive or neg-
ative to the firm performance depends on the contexts. As
Power refers to the capacity of individual actors to exert
1 their will and achieve their goals in a particular relationship
Korean Treasury Office revealed that the average proportion of
overall M&A activities over GDP in early 2000s of Korea was 3.3 % (Pfeffer 1981). Specifically, CEO power refers to the extent
(compared to 8 % worldwide average), and takeover threat was fairly to which a CEO has authority and influence over a firm and
negligible. This has been reflected on the evidence that Korean firms its management. Finkelstein (1992) suggested that CEOs
have not frequently adopted the anti-takeover devices such as poison acquire power from various sources, including internal
pill, supermajority amendments, and so forth.

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CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO Power and Board…
sources (e.g., managerial expertise and ownership control)
as well as external sources (e.g., personal prestige and
social status). CEO power is reflected in a CEO’s capacity
to exert his or her will and strengthen a CEO’s position
relative to the board. A broad observation is that CEO
power increases over time in the current position, regard-
less of its sources (Shen 2003). As CEO tenure increases,
CEOs likely acquire managerial expertise, develop rela-
tionships with directors, and gain considerable influence
over the board (Walters et al. 2010). And CEOs can also
gain power relative to the board through ownership
because CEO ownership can reduce the board’s influence
(Finkelstein 1992). In this context, we consider CEO tenure
and ownership as a critical source of CEO power over the
board. Below, we develop hypotheses regarding the mod-
erating effect of these two CEO power variables on the
hubris–performance relationship.
CEO Tenure
CEOs’ power is largely associated with their tenure (Shen
2003). New CEOs tend to confront significant challenges
and obstacles that they have never experienced. In order to
secure their authority power, new CEOs must be accepted
by their boards (Shen and Cannella 2002). Thus, until they
can meet the expectations of their boards, the power of new
CEOs will be much weaker than that of established CEOs
(Ocasio 1994). However, a CEO’s tenure increases, his or
her managerial expertise and discretion will also increase
(Shen 2003). Taking advantage of this increased expertise
and discretion, CEOs may try to strengthen their power by
selecting ‘‘compliant’’ directors (Westphal and Zajac
1995). Such directors may not be able to monitor effec-
tively the entrenched CEOs, so the entrenched CEOs’
tendency to make an excessive investment for their own
talent through resource expropriation would become more
severe, and in turn financial performance would suffer
more seriously. Thus, we hypothesize that the entrench-
ment problem arising from CEO hubris coupled with an
increased power from tenure would make the negative
hubris–performance relationship stronger.
Hypothesis 2a The longer the CEO’s tenure, the stronger
the negative relationship between CEO hubris and a firm’s
financial performance.
CEO Ownership
Managerial power accrues to managers in their capacity as
agents acting on behalf of shareholders (Finkelstein 1992).
Generally, CEOs with significant shareholdings will be
more powerful due to their substantial ownership control.
In addition, CEOs who are founders of a firm or are related
to founders may gain power, as they take advantage of their
unique positions to gain implicit control over boards of
directors. Thus, CEO ownership provides a CEO with
increased power, which can lead him or her to become
more entrenched within a firm (Connelly et al. 2010). As a
result, the entrenched CEOs’ tendency to make an exces-
sive investment for their own talent through resource
expropriation would become more severe, and in turn
financial performance would suffer more seriously. Exist-
ing works have already documented that the executive
power conveyed by larger equity stakes can increase the
capacity to make self-centered decisions (McClelland et al.
2012) and may have entrenching effects (Florackis et al.
2009). Thus, we propose that the negative effect of CEO
hubris on firm performance should be more pronounced as
a CEO has more power through the ownership control.
Hypothesis 2b The higher the level of CEO ownership,
the stronger the negative relationship between CEO hubris
and a firm’s financial performance.
Constraining Effect of Board Vigilance
Board vigilance is at the center of corporate governance
and is defined as the extent to which boards effectively
monitor and discipline top managers, especially CEOs
(Finkelstein et al. 2009). Faced with the inherent principal–
agent problem, weak board vigilance may permit top
executives to self-serve (Petrovic 2008). However, cir-
cumstances that may promote board vigilance can still
exist. We focus on two circumstances of strong board
vigilance: non-duality (i.e., the separation of the CEO from
a chairperson position in the board) and outside director
representation (i.e., a relative ratio of outside directors in
the board). Below, we develop hypotheses regarding the
effects of these two board vigilance variables on the
hubris–performance relationship.
Non-duality
It is suggested that the board vigilance is weakened when a
CEO also chairs its board, promoting CEO entrenchment
(Hayward and Hambrick 1997). CEO duality can amplify
managerial entrenchment concerns because chair-CEOs (1)
can dominate the agendas and contents of board meetings,
(2) can control most valuable information emerging from
board meetings, and (3) can strengthen their power by
selecting directors who are loyal to them (Finkelstein and
D’Aveni 1994). As such, CEO duality is more likely to allow
chair-CEOs to seek their personal interests in a relatively
uncontrolled manner (O’Sullivan 2009). On the contrary,
when the board chair and CEO positions are separated, such
CEOs may be less powerful of enabling their hubristic
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 Author's personal copy
mindsets to drive the firm in their attempts. Existing works
have already documented the possible influence of CEO
duality on their entrenchment. It was found that in general
CEO duality harms board independence and enables man-
agerial entrenchment by protecting their own positions
(Cannella and Lubatkin 1993; Daily and Dalton 1997;
Schepker and Oh 2013). Thus, we propose that the negative
effect of CEO hubris on firm performance should be atten-
uated as a CEO has restrained power in the case of separated
executive and chair positions.
Hypothesis 3a The negative relationship between CEO
hubris and a firm’s financial performance will be weaker in
the case of separated executive and chair positions.
Outside Director Representation
The presence of outside directors has important implica-
tions for the power dynamics between a CEO and the
board. Corporate governance theorists have long empha-
sized board independence as a primary condition for a
board’s vigilance to monitor and control top management
(Finkelstein et al. 2009). Outside directors are likely to
increase board independence and thus improve board vig-
ilance and firm performance (Petrovic 2008). Outside
directors are more independent and vigilant compared to
inside directors because they (1) rely on financial perfor-
mance in monitoring, (2) are obliged to dismiss under-
performing CEOs, and (3) are interested in developing their
personal reputations as directors (Finkelstein and D’Aveni
1994). As such, outside directors have substantial motiva-
tion to monitor CEOs vigilantly. Specifically, outside
directors can monitor the entrenched executives by con-
trolling the resource expropriation from manager-specific
investments through disapproving budget proposals from
executives or voting for CEO replacement. Thus, we assert
that the monitoring role of the outside directors in a board
can potentially restrain the deleterious consequence of
CEO hubris. Therefore, we propose that the negative effect
of CEO hubris on firm performance should be attenuated as
a CEO has restrained power through the monitoring
mechanism of outside directors.
Hypothesis 3b The higher the outside director repre-
sentation in a board, the weaker the negative relationship
between CEO hubris and a firm’s financial performance.
Methods
A Research Context
We believe that Korea is an ideal research setting to test
our research hypotheses. During Asian financial crisis in
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J.-H. Park et al.
late 1990s, most large Korean business groups (known as
Chaebol) had been criticized with lack of transparency in
corporate decision making, lower accountability of top
management, and higher debt–equity ratios compared to
their principal international competitors (Black et al. 2001).
In the wake of economic crisis, Korea has made a signifi-
cant progress in corporate governance reforms with the
hope that these reforms will lead to increases in trans-
parency of corporate decision making and accountability of
top management. The Korean government has largely
adopted the Anglo-American governance system, which
includes chair-CEO separation and introducing indepen-
dence of board of directors (Chang et al. 2007; Min and
Bowman 2012). Specifically, the Securities and Exchange
Act was amended to require that at least 25 % of the board
members of listed firms be independent outside directors,
whose fiduciary duty is to monitor the company in accor-
dance with applicable law and the company’s articles of
incorporation. As such, the present study could be infor-
mative in that it alternatively assesses whether Western-
based corporate governance reforms have been effective
for post-crisis Korean firms (Choi et al. 2007).
Sample and Data Collection
Our initial sample comprised the 200 largest firms listed on
the Korea Stock Exchange (KOSPI 200) for the years
2001–2008. The reason for selecting the large firms was to
ensure that our sample firms are under the substantial
amount of institutional pressure from the attention of the
public and the market for corporate governance reforms.
Among the initial sample, we excluded 19 financial service
firms in addition to 17 firms with limited data accessibility.
Finally, 654 (firm-year) observations of 164 firms were
used for the empirical test.
To collect data of sample firms, we relied on various
archive sources: (1) Data Analysis, Retrieval and Transfer
System (DARTS), (2) Korea Listed Companies Associa-
tion’s Directory of Corporate Management (KLCADCM),
(3) Korea Integrated News Database System (KINDS), and
(4) Korea Investors Services (KIS). The primary data
source for CEOs and board structures was the executive/
director list provided in each firm’s annual report from the
DARTS database. Additional descriptive information of
top management members, such as profiles of CEOs and
directors, were obtained from the KLCADCM database.
Data for CEO hubris were collected from various sources
such as news media articles provided by the KINDS
database, award/certification information provided by the
Federation of Korean Industries database, and CEO letters
in the annual reports of sample firms. Data for firm per-
formance and other financial statements were gathered
from the KIS database.
 Author's personal copy
CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO Power and Board…
To examine causal relationships, we intentionally
imposed time lags between independent, moderating, and
dependent variables. The CEO hubris variable (IV) was
measured by an average score of hubris composite during the
period from t - 3 to t - 1; both CEO power and board
vigilance variables (MV) were measured based on year t; and
firm performance (DV) was measured by an average score of
ROA during the period from t to t ? 1. For example, for the
data feature of the year of 2004, IV has an average score of
hubris composite during 2001–2003, while DV has an
average score of ROA during 2004–2005. Thus, to allow
such a time lag structure for our dataset, we collected data for
IV during 2001–2006 period, for MV during 2004–2007
period, and for DV during 2004–2008 period.
Variables and Measures
Dependent Variable
A firm’s financial performance was measured as a two-year
average of industry-adjusted return on asset (Ad-ROA),
which has been widely used as a performance measure in
existing literature (e.g., Cannella and Lubatkin 1993). To
control for potential industry effects on firm performance,
we need to subtract the corresponding industry median
ROA from each firm-level measure. As such, Ad-ROA was
calculated by subtracting the industry median ROA at the
two-digit Korean Standard Industry Code (KSIC) from
each firm’s ROA (Wiersema and Zhang 2011). We then
averaged Ad-ROA for two years (i.e., year t and year
t ? 1) in order to reduce bias caused by single-year outliers
(Johnson and Greening 1999).
Independent variable
Research on CEO psychological factors like hubris is chal-
lenging because any type of self-report from CEOs is subject
to social desirability bias (Cycyota and Harrison 2006;
Tourangeau and Yan 2007). Chatterjee and Hambrick (2007)
suggest that research on CEO personality traits would be to
use ‘‘unobtrusive’’ indicators. Hence, to measure the hubris
of existing CEOs, we relied on the secondary database,
investigating the media praises, award/certification records,
and CEO statement in annual report during CEO tenure in the
current company (Hayward and Hambrick1997; Wade et al.
2006; Hirshleifer et al. 2012). In the case of measuring the
hubris of newly appointed CEOs, we conducted content
analysis by examining the media praises, award/certification
records, and tracing CEO letters in annual report during CEO
tenure in their previous company.
CEO hubris is likely to be developed as media praises
CEOs, which include journalists’ positive review or
broadcast news about CEOs (Hayward and Hambrick
1997; Hayward et al. 2004). CEO hubris is also likely to be
cultivated by major economic or governmental institutions’
awards/certifications for CEO’s merits in managerial
activities and performance (Wade et al. 2006). In addition,
CEO hubris can be revealed through their language, which
can be assessed by the extent to which a CEO is confident
about the future actions and performance of the firm. As
such, our CEO hubris measure is a composite of three
hubris indicators. More details of hubris measurement are
articulated below.
First, media praises for the CEO were measured through
content analysis of major Korean newspapers with a three-
year window from year t - 3 to year t - 1. We searched for
articles on 288 CEOs from the sample firms in ten major
newspapers with high circulation and significant business
coverage nationwide (e.g., Chosun, Joongang, Donga Daily,
etc.). We collected 4313 articles mentioning or indicating 234
CEOs through the KINDS database. Two of the coauthors
coded each of the 4313 articles independently on the fol-
lowing scale: 3 points (the article unequivocally praised the
CEO), 2 points (the article was on balance favorable to the
CEO but did reveal some critical comments), 1 point (the
article was on balance neither positive nor negative about the
CEO), -1 point (the article was on balance negative about the
CEO but also contained some positive remarks), -2 points
(the article about the CEO was unequivocally negative), and 0
point that was assigned to 54 cases where CEOs received no
press coverage. The inter-rater reliability was very high
(r = 0.973, p \ .001). For 143 out of 4313 articles, two raters
discussed until they reached an agreement about the assess-
ment of each articles. A true score of media praises was a sum
across all press releases. For example, a CEO who was rated 3
points in one media exposure and 2 points in another exposure
received a total score of 5 for media praise.
Second, we collected the records of CEO award/certi-
fication as another source of hubris indicator. CEO profiles
were obtained from the KLCADCM database for the
2001–2006 period. We only counted CEO certifications
granted by the Federation of Korean Industries, the gov-
ernment-related organization, and two major economy
newspapers (MBN, Hankyung) since other award/certifi-
cation data were only presented sporadically with little
credibility among the experts in management or business
fields. Following Wade et al. (2006), a true score of CEO
award/certification was calculated as the number of awards
that CEOs had won from the year t - 3 to year t - 1.
About 60 percent (i.e., 170 CEOs) of the total CEOs in our
sample received awards from the t - 3 to year t - 1. For
those who received any awards during such a window, the
per-capita awards ranged from 1 to 29 with its mean value
of 4.35 and standard deviation of 4.22.
Third, we analyzed CEO letters in annual reports to
measure CEO hubris indicating how they are overconfident
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 Author's personal copy
(Hirshleifer et al. 2012). For this indicator, we counted the
total number of vocabularies that may portray a hubristic
mindset of CEOs, including confident, confidence, opti-
mistic, optimism, affirmative, extraordinary, tremendous,
and/or excessive. We also counted the total number of
vocabularies that may capture anti-hubristic mindset of
CEOs, including reliable, cautious, conservative, practical,
frugal, steady, not confident, and/or not optimistic. Then,
we calculated the difference between the total number of
the first set of words (hubris) and that of the second set of
words (anti-hubris) to measure the degree of CEO hubris
indicator (Malmendier and Tate 2008). The value of this
hubris indicator ranged from -5 to 14 with its mean value
of 2.07 and standard deviation of 2.89.
Finally, we derived a composite measure of CEO hubris
from factor analysis of the three hubris indicators. The
three indicators formed a single factor with an eigenvalue
of 2.08, accounting for 70 percent of the variance and
reasonable factor loadings (media praise = 0.85, record of
CEO award = 0.82, and CEO self-confidence = 0.81).
The loading values were used as a weight to construct an
overall hubris index (Hayward and Hambrick 1997).
Moderating Variables
We used two different indicators of CEO power: CEO
tenure and ownership. CEO tenure was measured as the
number of years that a CEO holds the position up to the
base year (Wiersema and Zhang 2011). CEO ownership
was measured as 1 if a CEO or his/her family is a block-
holder owning more than 5 percent shares of the firm and
0 otherwise (Kim 2010; Thomsen et al. 2006). Previous
studies have measured board vigilance by proxies such as
CEO non-duality, or outside director representation (Wal-
ters et al. 2010). Non-duality was coded as 1 if a CEO did
not serve as a board chairperson and 0 otherwise. Outside
director representation was measured as the proportion of
outside directors among all board members (Combs et al.
2007). To measure moderating variables, we relied on
various databases such as the DARTS and the KLCADCM
databases.
Control Variables
Due to a potential influence on a firm’s financial perfor-
mance, we controlled for firm size, prior firm performance,
leverage ratio, Chaebol dummy, share dispersion, board
size, CEO succession, and year fixed effects. Firm size was
measured as the natural log of a firm’s total asset in
thousands of Won (Korean currency) at the end of the fiscal
year (Cannella et al. 2008). Prior firm performance was
measured as a prior two-year average of industry-adjusted
ROA. Leverage ratio was measured as the debt-to-equity
123
J.-H. Park et al.
ratio of the firm. Chaebol dummy was coded as 1 if the
firm belonged to Chaebol groups listed in the Korean Fair
Trade Commissions and 0 otherwise. Share dispersion was
measured as an entropy index for the ownership percentage
of the top five shareholders at the firm in a given year.
Board size was measured as the total number of directors in
the board (Zajac and Westphal 1996). Finally, we consid-
ered CEO succession as a control variable, since change in
CEO could influence subsequent firm performance (Huson
et al. 2004). CEO succession was coded as 1 if the CEO
was a newly appointed CEO in a given year and 0 other-
wise. Finally, to control for differences in firm performance
due to economic cycles, we included year fixed effects.
Analysis
The assumption of continuous time that is necessary for
many longitudinal estimation techniques was not met for
our panel data. Consequently, we used the generalized least
squared (GLS) procedure to avoid the problem of cross-
sectional heteroskedasticity without considering within-
unit serial correlation (Cannella et al. 2008).
Normally, fixed-effects models are preferred in panel
data analyses (Greene 2003). However, we were precluded
from using a fixed-effects approach because some of our
variables were stable across time for sample firms. This is a
common problem when there are relatively few observa-
tions per cross-sectional unit (Greene 2003). When the
fixed-effects approach is ruled out, a random-effects
approach can be used where the fixed effects are uncorre-
lated with independent variables. Results from Hausman
test revealed no significant correlation between the inde-
pendent variable and the firm-level fixed effects (p [ 0.25).
Hence, we used random-effects models to test hypotheses.
Results
Table 1 shows the descriptive statistics and correlations
among the variables included in this study. The descriptive
statistics for our sample show that the average tenure of
CEOs is about 3.5 years over the target window of this
study; the proportion of firms with the separated executive
and chairperson positions is about 48 %; and the proportion
of firms with blockholder CEOs is about 38 %. And the
average outside director ratio is about 31 % and the average
number of board members in the sample is 7.4.
Standardized values of all key independent and moder-
ator variables were used to test our hypotheses. Standard-
ization reduces multicollinearity and facilitates the
interpretation of interaction terms (Aiken and West 1991).
Nonetheless, to avoid possible problem of multicollinear-
ity, we checked variance inflation factors (VIFs) for all
 Author's personal copy
CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO Power and Board…

-.081*
variables. All the VIFs were smaller than 2. Consequently,
12 our regression models were relatively free from potential
multicollinearity problems (Chatterjee and Hadi 2006).
Table 2 provides the results of the hypothesis test.

.030
-.013
Model 1 is the baseline model consisting only of control
11

variables. Model 2 was developed to test Hypothesis 1

-.134*
predicting the negative relationship between CEO hubris

.039

-.002
and a firm’s financial performance. Models 3, 4, and 7
10

examined the moderating role of CEO power as stated in

.220**
Hypotheses 2a and 2b, whereas Models 5, 6, and 8

.020

-.005
-.021
investigated the moderating role of board vigilance as
9

described in Hypotheses 3a and 3b. Finally, Model 9 is the

full model comprising all the variables.

-.115*
.040
.064
.001
.058
Our analysis first revealed a negative and significant
relationship between CEO hubris and a firm’s financial
8

performance (b = -.039, p \ .01). This result was

.455**

.440**
.100*

stable across different model specifications from Models 2

.025

.001

-.062

to 9, providing strong support for Hypothesis 1. Second,

7

the moderating effect of CEO tenure in Models 3, 7, and 9

.406**

.298**

.385**

was not significant, failing to support Hypothesis 2a.

-.093*

.080*
-.087*
.047

However, we found that CEO ownership strengthened the

6

negative effect of CEO hubris on a firm’s financial per-

formance in Model 4 (b = -.027, p \ .01). The moder-
.254**

.081**

.359**
.099*

.129*
-.010

.063

.072

ating effect of CEO ownership on the relationship between

the CEO hubris and a firm’s financial performance con-
5

tinued to be significant in Models 8 and 9, providing strong

-.249**
-.229**

-.255*

-.106*
-.103*

support for Hypothesis 2b. Finally, we found that both non-

.025

-.014

.042

.019

duality and outside director representation weakened the

4

negative relationship between CEO hubris and a firm’s

financial performance. Through Models 5, 6, 8, and 9, the
.396**
-.160**
-.289**
-.226**

-.202**

-.119**
-.226**
-.038

.008

.073

results were stable, providing support for both Hypotheses

3a and 3b, indicating that board vigilance can mitigate the
3

negative effect of CEO hubris on a firm’s financial per-

-.325**
.437**

.296**
-.160**
.214**

-.138**
-.088*

formance. All moderating effects are illustrated in Fig. 2.

-.037

-.060

.021

.022
2

Robustness Check
-.156**

.694**
.091*
-.105*

-.081*
.031
-.032

-.063

-.007
.041
-.001
-.017

We conducted several analyses of robustness check to

1

examine whether our results remain stable. First, we used a

n = 654; year dummies are not shown in the table

two-year average of industry-adjusted ROE as firm per-

Table 1 Descriptive Statistics and Correlations

.077

.486
.499
.149

.500
.279

.407
.067
4.157

1.949
2.540

2.705
18.235

formance instead of industry-adjusted ROA. We obtained

SD

basically identical results to those reported in this paper.

Second, we confined our sample to those cases where there
.016

.382
.480
.318

.486
.784

.209
.018
3.495

1.503

7.432
11.301

27.237
Mean

is no change in CEO position. About 20 percentage of our

observations belong to CEO succession cases where a new
CEO was appointed in that year under investigation. We
13. Prior firm performance
6. Outside director ratio

conducted the same empirical analyses with eliminating

* p \ .05, ** p \ .01
1. Firm performance

10. Share dispersion

12. CEO succession

those CEO succession cases from our sample and obtained

9. Chaebol dummy
4. CEO ownership

8. Leverage ratio

similar results. Finally, instead of GLS we used general-

5. Non-duality

11. Board size

3. CEO tenure
2. CEO hubris

ized estimating equation (GEE) procedure, which derive

7. Firm size

maximum likelihood estimation and control for non-inde-

Variable

pendent observations, and obtained identical results to

those revealed in this paper.

123
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J.-H. Park et al.

Table 2 Results of Random effects of GLS Regression Analysis for Firm Performance
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9

Testing variables
CEO hubris -.039** -.038** -.038** -.040** -.070*** -.037** -.068*** -.065***
(.013) (.013) (.013) (.013) (.014) (.013) (.014) (.014)
CEO hubris 9 CEO .010 .012 .027
tenure (.018) (.017) (.018)
CEO hubris 9 CEO -.027** -.027** -.025**
ownership (.010) (.010) (.010)
CEO hubris 9 Non- .034** .022* .027**
duality (.011) (.010) (.011)
CEO hubris 9 Outside .062*** .057*** .055**
director ratio (.012) (.012) (.010)
Controls
Firm size -.029 -.018 -.020 -.017 -.015 -.022 -.020 -.020 -.020
(.022) (.022) (.022) (.022) (.022) (.021) (.022) (.022) (.022)
Prior firm performance .612*** .598*** .605*** .598*** .595*** .569*** .603*** .567*** .567***
(.033) (.033) (.033) (.033) (.033) (.033) (.033) (.033) (.033)
Leverage ratio -.019 -.021 -.024 -.020 -.018 -.025 -.023 -.023 -.023
(.022) (.021) (.022) (.022) (.022) (.021) (.022) (.021) (.021)
Chaebol -.011 .006 .011 .006 -.004 .008 .011 .001 .001
(.027) (.028) (.028) (.028) (.028) (.027) (.028) (.027) (.027)
Share dispersion .017 .001 .007 .001 -.003 .006 .007 .003 .003
(.024) (.024) (.025) (.024) (.024) (.024) (.025) (.023) (.024)
Board size -.006 -.003 -.006 -.003 .004 .001 -.006 .005 .005
(.027) (.027) (.027) (.027) (.027) (.026) (.027) (.027) (.027)
CEO succession .051** .051** .048** .051** .048** .058** .048** .056** .056**
(.018) (.020) (.020) (.020) (.020) (.020) (.020) (.020) (.020)
CEO tenure -.011 .002 .003 .004 -.001 .015 .005 .012 .012
(.024) (.025) (.024) (.025) (.025) (.025) (.025) (.025) (.025)
CEO ownership -.002 -.001 -.001 -.001 -.002 -.008 .001 -.008 -.008
(.023) (.023) (.028) (.023) (.023) (.023) (.023) (.022) (.023)
Non-duality -.008 -.001 -.002 .001 -.011 -.004 -.001 .004 .004
(.028) (.028) (.027) (.028) (.028) (.027) (.028) (.027) (.027)
Outside director ratio -.030 -.019 -.016 -.018 -.027 -.020 -.014 -.025 -.025
(.028) (.028) (.028) (.029) (.028) (.028) (.028) (.027) (.028)
Constant .055 .058 .052 .057 .065  .022 .052 .030 .030
(.040) (.039) (.039) (.040) (.039) (.039) (.039) (.040) (.039)
Wald v2 440.16*** 446.65*** 467.80*** 447.35*** 474.81*** 509.28*** 466.45*** 523.81*** 540.95***
n = 654; standardized coefficients are reported with standard errors in parentheses; year dummies are not included in the table
 
p \ .1, * p \ .05, ** p \ .01, *** p \ .001

Discussion conclusions: (1) CEO hubris makes firms underperform

With a sample of Korean large firms, this study focuses
on CEO hubris and its detrimental effect on corporate
financial performance along with an examination of
critical corporate governance contingencies (CEO
power and board vigilance) that may moderate the
negative effect. Evidence of this study offers three
in Korea; (2) corporate governance contingencies,
involving a set of power dynamics between a CEO and
the board, moderate the CEO hubris–performance
relationship; and especially (3) board vigilance is found
to effectively reduce the entrenchment problems arising
from CEO hubris in Korea as similarly observed in
previous Western-based literature.

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CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO Power and Board…
Fig. 2 Moderating effects of CEO ownership, non-duality, and
outside director representation on the relationship between CEO
hubris and ROA
First of all, we found that CEO hubris had a negative
effect on the firm’s financial performance in Korea. CEO’s
hubris can be formed through past achievement, public
praise, or positively inflated mindset for the self and own
decision (Hayward and Hambrick 1997; Hiller and Ham-
brick 2005; Malmendier and Tate 2008). Once individuals
are indulged with achievements, recognition, praises, or
self-confidence, they are likely to be inclined to stay longer
in their current prestigious position, and namely entrench
themselves in the organization. Then entrenched CEOs by
hubris may make an excessive investment for their own
talent through resource expropriation (i.e., manager-speci-
fic investment) so as to make their replacement extremely
costly or try to neutralize the governance control. Conse-
quently, top managers can further expropriate corporate
resources easily and engage in uncontrollable discretionary
behaviors even when such behavior is value destroying
(Shleifer and Vishny 1989). This tendency is more pro-
nounced in Korean context that is marked by the weak
capital market pressure and a unique corporate structure
(i.e., Chaebol). Evidence of our study confirms the detri-
mental effect of CEO hubris on the firm performance.
However, we also found that the detrimental effect of
CEO hubris could be moderated by corporate governance
contingencies, including CEO power and board vigilance
variables.
CEO power variables in this study include CEO tenure
and ownership. We found the strong support for the mod-
erating effect of CEO ownership as predicted. Thus, the
results indicate that, with increased CEO ownership, the risk
of CEO entrenchment increases, making CEO hubris more
dysfunctional. For CEO tenure, however, it is not clear why
the interaction between CEO hubris and tenure turned out to
be insignificant. This is partly because CEO tenure may not
translate the CEO’s active control and power into the firm’s
actions and outcomes in the same way that CEO ownership
does. Perhaps, power may not stem from the number of years
during which CEOs have held their positions; instead, it can
arise from their expertise, prestige, and legitimacy they have
amassed over the course of their tenure.
The board vigilance variables include non-duality and
outside director representation. These two variables are
assumed to promote board independence in ways to reduce
managerial entrenchment problems, given that indepen-
dence of board structure is a prerequisite for improving
board vigilance. When the CEO and chairperson positions
are separated and when the number of outside directors are
assigned to ensure board independence, potential entrench-
ment problems are of less concern, as our results indicated.
These findings are consistent with recommendations by
corporate governance scholars that the board should be filled
with a large percentage of outside directors and select board
chairs who are not CEOs so as to enhance board indepen-
dence (Hayward and Hambrick 1997; O’Sullivan 2009).
Theoretical Contributions and Managerial
Implications
Based on findings and conclusions, this study offers
important theoretical contributions. First, this study
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 Author's personal copy
explores the relationship between CEO hubris and corpo-
rate financial performance in a theoretically meaningful
way. The present study integrates managerial entrenchment
theory (Shleifer and Vishny 1989) with an account of
context-specific institutionalism (Sundaramurthy 2000),
proposing that whether hubristic CEOs are positive or
negative to corporate outcomes depend upon the contexts
in which firms are instituted. This study particularly sug-
gests that CEO entrenchment by hubris could be detri-
mental to the firm performance in Korea, since Korean
large firms have been instituted in the context in which the
market pressure for the performance is relatively less
intense, and firms are governed largely by powerful
founding families under the name of Chaebol. Thus, the
present study contributes to the literature by contextualiz-
ing the scope of theorizing for the effect of CEO hubris on
the firm performance, so that the hubris–performance
relationship is more precisely understood.
Second, this study suggests that hubris researchers need
to pay more attention to internal power dynamics between a
CEO and the board as well as boundary conditions that can
change such dynamism. This study suggests that the effect
of hubristic CEOs would depend upon power balancing
forces, and thus the notion of power dynamics should be
considered in a broader context. Prior research has shown
that CEO hubris influences the firm’s decision processes
and outcomes (Hayward and Hambrick 1997; Hiller and
Hambrick 2005; Malmendier and Tate 2005, 2008), but
very few studies have examined potential boundary con-
ditions of the impact of CEO hubris on firm performance
(Li and Tang 2010). Centered on CEO–board power
dynamics, this study introduces a set of corporate gover-
nance contingencies that amplify (by CEO power vari-
ables) or buffer (by board vigilance variables) a detrimental
effect of CEO hubris on corporate performance. Thus, it is
a clear contribution of this study to develop a theoretical
framework for hubris–performance linkage, which is both
sufficiently detailed to convey its complexity and infor-
mative enough to render the future hubris–performance
predictive models feasible.
Last, prior studies on CEO hubris have been conducted
mostly in Western country contexts (Hambrick and
Finkelstein 1987; Hayward and Hambrick 1997). Only few
studies have been done in non-Western country contexts
such as Asia (Li and Tang 2010). To address this gap, this
study investigated a sample of large Korean firms. Cho and
Kim (2007) broadly argued that despite corporate gover-
nance reforms, Korean large firms are suspicious in
demonstrating the effectiveness of board’s monitoring role
(especially outside directors) due to a strong heritage of
‘‘owner-controlled’’ governance structure. In this regard,
Korea’s unique corporate governance structure may make
it a particularly difficult setting in which to find support for
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J.-H. Park et al.
the propositions tested in our study. Nevertheless, this
study still found significant moderating effects of board
vigilance variables for the relationship between CEO
hubris and the firm’s financial performance. This study thus
contributes to the literature by generalizing the effect of
board vigilance on CEO hubris–performance relationship
even in a non-Western context.
In addition to theoretical contributions, this study also
offers practical implications for corporate managers. First,
departing from previous literature, this study has directly
explored the relationship between CEO hubris and corpo-
rate financial performance. Although previous studies
tackled various strategic processes in relation to CEO
hubris, they have left the linkage to corporate performance
unanswered. Given the immediate implication, corporate
financial performance is a key agenda of hubris research
that needs to be examined.
Second, this study offers some practical insights of how
to prevent the detrimental effect of CEO hubris on corpo-
rate outcomes. In the Western context, confident and self-
exaggerated CEOs have often been juxtaposed as heroic
leaders (Khurana 2002; Whitney 1987). It is particularly
true especially when they are visionary entrepreneurs who
have been growing firms substantially (Maccoby 2004).
However, this study explores CEO hubris among Korean
large firms, focusing on the criticism for their narcissistic
leadership of top managers who wield absolute power at
the expense of other stakeholders. As such, it is particularly
instructive to investigate how to monitor hubristic CEOs
among Korean firms and lessen their negative impact on
firm performance. This study suggests that chair-CEO
separation and assigning outside directors could be an
effective means to control a detrimental effect of hubristic
CEOs in Korea.
Additionally, evidence of this study shows that Korean
corporate governance reforms are headed in the right
direction. In Korea, various corporate governance initia-
tives were adopted following the Asian financial crisis of
1997–1998. For example, a certain percentage of the board
of directors must consist of outside directors by the
amended Securities and Exchange Act. However, some
Korean scholars challenged that these outside directors
have not effectively performed the function of checks and
balances against the CEOs in protecting the wealth of
shareholders (e.g., Chang and Shin 2006). Indeed, the
corporate governance of Korean firms is different from that
of the Western firms in nature because Korea has devel-
oped a unique corporate structure as Chaebol, under which
individual firms are affiliated with large family-run,
diversified business groups. In such a structure, the boards
in Chaebol firms used to serve simply as ‘‘rubber stamps’’
for the benefit of owner families (Korea Stock Exchange
2000). The prevalence of CEO duality practice in Korea
 Author's personal copy
CEO Hubris and Firm Performance: Exploring the Moderating Roles of CEO Power and Board…
compounded the board vigilance concerns. In effect,
without an independent chair, a board may find its moni-
toring role to be particularly difficult. However, consistent
with recent corporate governance literature, our findings
regarding non-duality and outside director independence
combined confirm that the Korean corporate governance
reforms have been fairly effective.
Although our findings clearly indicate the monitoring
role of board vigilance on hubristic CEOs, implications
should be offered with a great caution. As shown in Fig. 2,
board vigilance can help reduce the negative effect of CEO
hubris on a firm’s financial performance, but cannot turn
such a negative influence into a positive one. Thus, con-
trolling hubristic CEOs does not necessarily lead to posi-
tive performance or creating value of the firm. This finding
may hint at an overall idea why organizations should
redirect their focus from controlling hubristic leaders to
promoting ‘‘authentic’’ leaders (Petit and Bollaert 2012).
The authentic leader is humble, self-disciplined, and highly
connected to an organization and stakeholders that he or
she has to lead, and therefore enduring values can be cre-
ated (George 2003). Thus, the authentic CEOs could be a
critical asset for an organization’s long-term success. As
such, organizations need to seek various ways to promote a
CEO’s authenticity while keeping monitoring his or her
hubristic behaviors and decisions by establishing a proper
corporate governance structure.
Limitations and Future Research
Despite the contributions, some limitations must also be
acknowledged to present fruitful avenues for future
research. First, although we used the hubris–performance
relationship as a point of departure, it is quite difficult to
tease out the isolated effect of CEO hubris on a firm’s
financial performance, given the various internal and
external determinants of firm performance, such as luck,
environmental conditions, firm resources and capabilities,
or the other characteristics of CEO. Second, in this study,
we develop the CEO hubris as a step toward examining the
unhealthy influence of CEO hubris on the actions and
performance of a firm. Although we provided a theoretical
discussion on how governance concerns and related prob-
lematic decisions may arise from CEO hubris, the degree
of CEO hubris is partially assessed by the exposure of
media praise. However, extant studies have used the phe-
nomenon of media praise to capture not only the negative
term of ‘‘CEO hubris’’ (Hayward and Hambrick 1997), but
also the neutral term of ‘‘CEO celebrity’’ (Hayward et al.
2004). Future research might explore further more
sophisticated indices or scales that capture CEO hubris.
In closing, this study suggests that research on CEO
hubris and firm performance should be understood under
the country-specific and CEO-board power dynamic con-
texts. Also this study highlights the deleterious conse-
quence of CEO hubris on performance and various
moderating conditions, yet further suggests the need for
future fine-grained research on various antecedents and
consequences of CEO hubris.
Compliance with Ethical Standards
Conflict of interest All authors declare that they have no conflict of
interest in this study.
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