Abstract

Introduction: The cash conversion cycle is one of the most important indicators of working capital management efficiency, reflecting how a firm allocates and recovers its short-term resources. Despite the importance of this measure, most prior studies have focused on its financial and operational determinants, while relatively limited attention has been paid to the behavioral characteristics of top executives. Drawing on Upper Echelons Theory and Agency Theory, CEO personality traits may influence firms’ financial and operational decisions. Accordingly, this study examines the relationship between CEO narcissism and the cash conversion cycle in firms listed on the Tehran Stock Exchange.

Methods: This study is applied in terms of purpose and employs an ex post facto research design based on panel data. The sample consists of 162 firms listed on the Tehran Stock Exchange over the period 1399–1403, yielding a total of 810 firm-year observations. CEO narcissism was measured using CEO signature size based on a modified version of the signature-size approach adapted from Ham et al. (2018) to account for the specific characteristics of Persian signatures. The cash conversion cycle was calculated as the sum of days inventory outstanding and days sales outstanding minus days payable outstanding. The research hypothesis was tested using multivariate panel regression with firm fixed effects. The final model was estimated using panel generalized least squares (Panel EGLS) with cross-sectional weights and firm-level cluster-robust standard errors. Firm size, return on assets, financial leverage, sales growth, firm age, and asset tangibility were included as control variables.

Finding: The results indicate a positive and statistically significant association between CEO narcissism and the cash conversion cycle. This pattern is consistent with the theoretical argument that CEOs with higher levels of narcissism may, due to a greater tendency toward bold decision-making, business expansion, and maintaining control over corporate resources, commit more resources to working capital. Among the control variables, firm size, return on assets, and firm age are positively and significantly associated with the cash conversion cycle, whereas financial leverage, sales growth, and asset tangibility are negatively and significantly associated with it. Furthermore, the separate analysis of the cash conversion cycle components shows that CEO narcissism is positively and significantly associated with days inventory outstanding and days sales outstanding, while it is negatively and significantly associated with days payable outstanding. Collectively, this pattern is consistent with a longer cash conversion cycle.

Conclusions: The findings indicate that the cash conversion cycle is not determined solely by firms’ financial and operational characteristics; CEO personality traits may also play a role in shaping working capital policies. Given the non-directional formulation of the research hypothesis, the direction of the relationship observed in the study sample is positive, such that greater CEO narcissism is associated with a longer period during which corporate resources remain tied up in operating activities. The observed positive relationship between CEO narcissism and the cash conversion cycle further indicates that greater narcissism is associated with a longer period of resource commitment within the firm’s operating process. This finding highlights the role of managerial behavioral factors in explaining working capital management efficiency. By extending the application of Upper Echelons Theory to short-term financial management, the study also underscores the importance for boards of directors, investors, and financial analysts to consider CEOs’ behavioral characteristics alongside traditional indicators of liquidity and operational efficiency.