Manager narcissism, target difficulty, and employee dysfunctional behavior

Abstract We examine whether managers' narcissism explains the difficulty of the performance targets that they set for their subordinate employees and the resulting dysfunctional behaviors of these employees. Utilizing a field‐based data set and a government policy change that imposes higher performance standards, we document both direct and indirect associations between manager narcissism and employee dysfunctional behavior. In particular, we find that managers with a higher degree of narcissism respond to the higher performance standards by setting more difficult targets for their subordinates, which in turn lead to more employee dysfunctional behaviors. Furthermore, after controlling for the effect of target difficulty, we find that manager narcissism also has a direct positive association with employee dysfunctional behavior. Our findings contribute to the management accounting literature by documenting that narcissism, a personality trait that is ubiquitous among managers, plays an important role in affecting managers' control choices and the dysfunctional behaviors of lower‐level employees.