p–ISSN: 2723 - 6609 e-ISSN: 2745-5254

Vol. 5, No. 6 Juny 2024 http://jist.publikasiindonesia.id/

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2781

The Effect of CEO Narcissism, Company Size, and Free Cash

Flow on Financial Performance through CSR in SOEs on the

IDX 2018-2022

Gunawan Hadi Prastiyono

, Andini Nurwulandari

Universitas Nasional, Indonesia

Email: [email protected]

, [email protected]

*Correspondence

ABSTRACT

Keywords: CEO

Narcissism; Company

Size; Free Cash Flow;

Corporate Social

Responsibility; Financial

Performance.

This study aimed to determine the effect of CEO Narcissism,

Company Size, and Free Cash Flow through Corporate

Social Responsibility (CSR) on Financial Performance in

State-owned enterprises Companies. This study uses a

quantitative approach with data sources from the Indonesia

Stock Exchange (IDX) official website using the Warppls

7.0 application. The research sample data were from 16

state-owned enterprise companies. The test results show that

CEO Narcissism has a negative and significant effect on

Corporate Social Responsibility (CSR), Company Size has a

negative and insignificant effect on Corporate Social

Responsibility (CSR), Free Cash Flow has a positive and

insignificant effect on Corporate Social Responsibility

(CSR), CEO Narcissism is unable to mediate the effect of

Corporate Social Responsibility (CSR) on financial

performance. Company Size cannot mediate the effect of

Corporate Social Responsibility (CSR) on financial

performance. Free Cash Flow cannot mediate the influence

of Corporate Social Responsibility (CSR) on financial

performance. The Total Determination Coefficient in this

study is 0.285 or 28.5%. This indicates the model can explain

28.5% of the data's information. Other factors not included

in the study model account for the remainder.

Introduction

Indonesia's rapid economic growth has created a dynamic business environment in

recent years. The role of State-Owned Enterprises (SOEs) in supporting economic

stability and growth is becoming increasingly important (Gao, Gao, Long, & Wang,

2023). The financial performance of SOEs is the focus of attention, considering its impact

on sustainability and the contribution of SOEs to national development (Gao et al., 2023).

Problems related to the financial performance of state-owned companies in Indonesia

have become complex, involving several factors that can affect the company's financial

results.

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Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2782

Financial performance is a significant factor for a company to achieve its goals in

terms of seeing the performance of a company. According to research conducted by

(Onoyi & and Windayati, 2021), financial performance is a description of financial

aspects related to the operational conditions of a company, both increasing and

decreasing. Therefore, financial performance provides a general picture of the company's

results from financial activities that have been carried out. A company's performance can

be assessed by analyzing financial reporting ratios, such as profitability ratios (ROA).

Many factors affect a company's financial performance, and one of them is the

CEO's role in decision-making. Decisions made by a CEO are more strategic and

challenging to analyze, not just operational decisions.

Based on the study's results, the company's size can be used to indicate that larger

companies have better financial performance. The larger a company, the better its

financial performance. This is due to the company's size, which proper management

supports. The research results (Pratiwi, 2020) show that the company's size refers to how

big or small a company is.

In agency theory, larger companies have more resources to manage risk and monitor

operational activities. Large companies usually have more assets than small companies.

This suggests that the size of a company, measured by market capitalization, is positively

related to total assets. The larger the company's size (in terms of market capitalization),

the greater the number of assets owned.

Research from (Kalbuana, Suryati, & and Pertiwi, 2022) stated that narcissistic

CEOs negatively influence a company's financial performance. Such characteristics can

hinder the project's success since narcissistic CEOs tend to impose their opinions on

employees while monopolizing the decision-making process.

Based on the results of research from (Rofiah et al., 2024), Free Cash Flow

Negatively Affects Financial Performance. The Free Cash Flow available in a company

has not been adequately utilized. The free cash flow available in a company can be

invested in profitable investments to increase operating profits, and thus, the company's

Financial Performance will improve.

The Effect of CEO Narcissism, Company Size, and Free Cash Flow on Financial Performance

through CSR in SOEs on the IDX 2018-2022

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2783

Method

Research Mindset

Figure

Research Mindset

Research Hypothesis:

H1: CEO Narcissism negatively affects Corporate Social Responsibility (CSR).

H2: Company Size positively affects Corporate Social Responsibility (CSR).

H3: Free Cash Flow positively affects Corporate Social Responsibility (CSR).

H4: CEO Narcissism negatively affects Financial Performance.

H5: Company Size has a positive effect on Financial Performance.

H6: Free Cash Flow negatively affects Financial Performance.

H7: Corporate Social Responsibility (CSR) positively affects Financial Performance.

H8: CEO Narcissism negatively affects Financial Performance through Corporate Social

Responsibility (CSR).

H9: Company Size positively affects Financial Performance through Corporate Social

Responsibility (CSR).

H10: Free Cash Flow positively affects Financial Performance through Corporate Social

Responsibility (CSR).

Data Collection Methods

This study uses a quantitative approach, using secondary data on state-owned

companies on the Indonesia Stock Exchange (IDX) for 2018-2022.

Population and Sample

The population in this study is state-owned companies listed on the Indonesia Stock

Exchange for 2018 – 2022. The research sample is 16 state-owned companies listed on

the Indonesia Stock Exchange under the following conditions:

1. State-owned companies listed on the Indonesia Stock Exchange from 2018 to 2022.

Gunawan Hadi Prastiyono, Andini Nurwulandari

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2784

2. Provide Annual Reports published consistently throughout the research period.

3. Companies that experienced fluctuations in financial performance from 2018 to 2022.

Data Analysis Techniques

Data processing in this study uses WarpPLS 7.0 to test research hypotheses in State-

Owned Enterprises (SOEs) listed on the Indonesia Stock Exchange (IDX) for 2018 –

2022. The similarities of this study are as follows:

CSR = β1CN + β2UP + β3AKB + e (Equation 1)

KK = β1CN + β2UP + β3AKB + β4CSR + e (Equation 2)

Information:

CN = CEO Narsisme

UP = Company Size

AKB = Free Cash Flow

CSR = Corporate Social Responsibility

KK = Financial Performance

Results and Discussion

Table 1

Validity and Reliab Testilitas

Based on the validity test based on loading in Table 1, the above variables have a

loading value of > 0.7 and a p-value of < 0.001. Based on the loading value, the data can

be concluded to have met the validity requirements.

The Effect of CEO Narcissism, Company Size, and Free Cash Flow on Financial Performance

through CSR in SOEs on the IDX 2018-2022

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Table 2

Discriminant Validity Test

Table 2 of the Discriminant Test shows that the CEO Narcissism variable has a low

correlation with other variables, which shows this is a different construct. Free Cash Flow

has a higher correlation with itself (0.844), which indicates strong discriminant validity.

Financial Performance negatively correlates with CEO Narcissism (-0.349), which can

imply an inverse relationship.

From the table above, it can be concluded that:

1. The discriminant validity of most variables seems to have been good, given the low

value outside the diagonal.

2. The negative correlation between CEO Narcissism and Financial Performance can be

an interesting one, potentially indicating that higher levels of CEO Narcissism may be

associated with poorer financial performance.

Table 3

Validity Test Based on Average Variance Extracted (AVE) and

Composite Reliability (CR)

Based on the AVE results in Table 4.3, all AVE values are> 0.5, which means that

all indicators have absorbed the variance of each variable valued at 1, meaning it is said

to be valid.

Overall Model Fit Testing (Model fit)

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Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2786

Table 4

Model Conformity Test

Table 4 includes several match and quality indices, analysis results, matching

criteria, and corresponding descriptions.

1. The match indices mentioned in the table consist of Average Path Coefficient (APC),

Average R-squared (ARS), Average Adjusted R-squared (AARS), Average Block VIF

(AVIF), Average Full Collinearity (AFVIF), and Tenenhaus GoF (GoF). The table

provides analysis results for each match index, including numeric values and p-values.

2. A p-value less than 0.05 is used as the model fit criterion.

Structural Model / Inner Model Test (Significance Test of Direct and Indirect

Influence (Intervening)

The Effect of CEO Narcissism, Company Size, and Free Cash Flow on Financial Performance

through CSR in SOEs on the IDX 2018-2022

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2787

Figure 2

Uji Model Struktural

The similarities of this study are as follows:

Equation 1

CSR = -0,314 CN – 0,066 UP + 0,069 AKB

Equation 2

KK = -0,267 CN + 0,009 UP – 0,172 AKB + 0,226 CSR.

Information:

CN = CEO Narsisme

UP = Company Size

AKB = Free Cash Flow

CSR = Corporate Social Responsibility

KK = Financial Performance

Direct Effect

The table below shows the results of the direct influence of the independent variable

on the dependent variable in this study:

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Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2788

Table 5

Direct Effect Significance Test

Regression Equation

a) CSR = -0,314 CEO- 0,066 UP + 0,609 AKB (equation 1)

R2 = 0,100

b) KK = -0,267 CEO + 0,009 UP - 0, 172 AKB + 0,226 CSR (equation 2)

R2 = 0,204

In this context, CSR is an intervening variable. While CEO, UP, and AKB are

independent variables or variables used to make CSR predictions. In this equation, the

coefficient is a number that follows the independent variables. This shows that each

independent variable influences the dependent variable, assuming the other variables are

fixed.

So, from the given equation, we can interpret the influence of each variable as

follows:

Equation 1

1) Chief Executive Officer (CEO):

The coefficient for the CEO is -0.314. This means that every one-unit increase in

the CEO variable will lead to a 0.3140.314 unit decrease in CSR, assuming UP and AKB

remain.

2) Company Size (UP):

The coefficient for Enterprise Size is -0.066. This means that every one-unit

increase in the UP variable will lead to a 0.066-unit decrease in CSR, assuming the CEO

and AKB remain.

3) Free Cash Flow (AKB):

The Effect of CEO Narcissism, Company Size, and Free Cash Flow on Financial Performance

through CSR in SOEs on the IDX 2018-2022

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2789

The coefficient for AKB is 0.609. This means every one unit increase in the AKB

variable will lead to a 0.609 unit increase in CSR, assuming the CEO and UP remain.

Next for the value of R2 is the coefficient of determination. This value indicates

how well the independent variable explains the variation in the dependent variable. In this

case, the value of R2 = 0.100, which means that about 10% of the variation in CSR can

be explained by the CEO, UP, and AKB variables in the regression model. This implies

that other factors beyond the variables used in the model can also affect CSR variables

but are not described in this equation.

H1: CEO Narcissism negatively and significantly affects Corporate Social

Responsibility (CSR).

Research has shown that CEO narcissism significantly negatively impacts

Corporate Social Responsibility (CSR). Wardoyo (2023) found that CSR disclosure has

a negative or insignificant effect on profit management, often influenced by CEO

behaviour.

Research by (Gao et al., 2023) also supports this by showing that CSR disclosure

significantly negatively impacts company value. Suaidah (2020) also found a significant

negative impact of CSR on the company's financial performance. Therefore, it can be

concluded that CEO narcissism, as the company's main characteristic, does have a

significant negative impact on CSR.

H2: Company Size has a negative and insignificant effect on Corporate Social

Responsibility (CSR).

Several studies have shown that Company Size can positively influence Corporate

Social Responsibility. Companies with more excellent resources often have more

opportunities to engage in significant CSR initiatives, including contributions to society,

environmental conservation, or sustainable business practices.

The results of research conducted by Andira, Andriyanto &; Sumilir (2021) show

that company size negatively affects Corporate Social Responsibility (CSR) disclosure.

Companies with significant total assets, high stock market values, or large sales volumes

tend to be less active in disclosing their CSR activities and programs. Companies with

high stock market values or large sales volumes tend to be more pressured to meet

investor and shareholder expectations. The main focus is often on revenue growth, profits,

and company value.

Companies may be more inclined to allocate resources and attention to efforts that

directly contribute to financial performance rather than CSR programs that may be

perceived as unimportant "additions."

H3: Free Cash Flow has a positive and insignificant effect on Corporate Social

Responsibility (CSR).

The study's results show that free cash flow is the remaining operating cash after

deducting investments made by the company in fixed assets and working capital. The

remaining cash is to be distributed to shareholders (Inggrawati, 2016). In its distribution,

free cash flow often causes conflicts of interest between managers and shareholders.

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Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2790

This study provides empirical evidence from research from (Habib & and Hasan,

2019) that companies with high free cash flow tend to have a greater tendency to carry

out CSR initiatives. This can be explained by a more significant financial ability to

support social and environmental activities.

H4: CEO Narcissism has a negative and significant effect on Financial Performance.

Research shows that narcissism refers to psychological constructs that include

personality traits such as excessive selfishness, self-superiority, lack of empathy, desire

to be admired, control and power, and strengthening self-image through external

admiration.

The research conducted by Al-Albrow et al. (2019) and (Kalbuana et al., 2022)

stated that narcissistic CEOs negatively influence the company's financial performance.

Such characteristics can hinder the project's success since narcissistic CEOs tend to

impose their opinions on employees while monopolizing the decision-making process.

The results of the study above provide empirical evidence that CEO narcissism has

a negative influence on financial performance because CEO narcissism can be used as a

guideline for the level of achievement of a company's financial goals. This can explain

why a company with a good image can attract investors to invest in the company.

Investors and creditors typically look at financial statements to check financial

performance and determine how confident a CEO is.

H5: Company Size has a positive and insignificant effect on Financial Performance.

The study's findings show that a company's size can be a benchmark for its financial

performance, with larger organizations often showing more robust financial performance.

The company's financial performance increases along with its size. This is the result of

the work of the right management team that can support the company's size.

The research results of Warianto Rusiti (2016) show that company size refers to

how big or small a company is. The amount of assets reported in its financial statements

can be used to determine a company's size, which impacts its financial performance.

The size of a company can be determined by the number of assets reported in its

financial statements. The greater the total assets, the larger the size of the company. The

smaller the number of assets, the smaller the company's size.

H6: Free Cash Flow negatively and significantly affects Financial Performance.

The results showed that the existence of free cash flow can affect a company's

financial performance. The research shows that the company's internal funding sources

are insufficient to meet investment needs, so the company must obtain additional funds

through debt or the issuance of new shares. According to agency theory, companies with

free cash flow tend to grow faster than the ideal point for maximizing shareholder wealth.

This is related to financial performance, which also declines, as research conducted

by (Mujiburrahman, Kartiani, & and Parhanuddin, 2023) shows that free cash flow hurts

financial performance. Jensen (1986) showed that managers can use free cash flow for

unprofitable projects, inefficient resource allocation, excessive consumption behaviour,

and poorly targeted spending. This provides empirical evidence that excess free cash flow

can hurt financial performance.

The Effect of CEO Narcissism, Company Size, and Free Cash Flow on Financial Performance

through CSR in SOEs on the IDX 2018-2022

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2791

H7: Corporate Social Responsibility (CSR) positively and significantly affects

Financial Performance.

Based on the results of research conducted by (Wa’alin & and Munandar, 2024),

which examined the effect of Corporate Social Responsibility on the financial

performance of banking companies, where the research sample used was banking

companies listed on the IDX during the period 2009-2011. The results of this study show

that Corporate Social Responsibility (CSR) has a significant positive effect on the

company's financial performance, which is proxied by Return on Assets (ROA) and

Return on Equity (ROE).

Companies that develop CSR by improving environmental performance can

improve their performance. Companies can do this by showing people that they have

taken responsibility for behaviours and decisions that impact people's well-being.

According to research conducted by (Mubarrok, 2017), implementing social

responsibility can generate savings and increase a company's profitability. However,

environmental disclosure about a company's financial performance is becoming more

important today because investors can see how much the company can contribute to the

surrounding environment and cannot escape environmental activities. The food and

beverage industries are often highlighted as industries that produce much waste, which

has a terrible environmental impact.

H8: Corporate Social Responsibility (CSR) cannot mediate the influence of CEO

Narcissism on Financial Performance.

The results showed that Corporate Social Responsibility (CSR) cannot mediate the

influence of CEO Narcissism on Financial Performance because narcissistic CEOs tend

to hurt Corporate Social Responsibility (CSR). That goes hand in hand with agency and

self-interest theory: narcissistic CEOs may focus more on fulfilling personal interests and

achieving personal goals than the interests of shareholders or society.

Research conducted by (Kalbuana et al., 2022) found that narcissistic CEOs

negatively impact a company's financial performance. These traits can hinder project

success, as narcissistic CEOs tend to impose their opinions on employees and dominate

decision-making.

This can lead to decisions that are detrimental to social and environmental

sustainability. In addition, narcissistic CEOs may be less capable or less willing to form

good relationships with external parties or the general public. A company's reputation is

an important concern for potential investors before investing in it.

H9: Corporate Social Responsibility (CSR) cannot mediate the effect of Company

Size on Financial Performance.

The results showed that Corporate Social Responsibility (CSR) cannot mediate the

effect of Company Size on Financial Performance because CSR activities can burden a

company, meaning that the more excellent CSR issued by a company reduces the

company's profit. The results of this study show that CSR disclosure, for the first time,

does have a significant impact on market reaction. However, this impact is not always

negative.

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Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2792

The research found that the market tends to respond positively to companies with

significant CSR disclosures. This response mainly comes in the form of an increase in the

share price and liquidity of the company's shares. The results of research conducted by

Yulius Ardy Wiranata (2013) explained that the company's size, when measured by total

assets, negatively affects financial performance with an insignificant influence.

Companies with significant resources often have more opportunities to engage in

Corporate Social Responsibility initiatives. However, larger companies often care less

about CSR because it is burdensome for a company and considered something less

influential on financial performance.

Thus, although first-time CSR disclosure can be considered an additional burden

and challenge for the company, it does not necessarily hurt financial performance.

Companies that manage CSR will often find that this improves reputation and stakeholder

support and provides significant financial and operational benefits.

H10: Corporate Social Responsibility (CSR) cannot mediate the effect of Free Cash

Flow on Financial Performance.

The results show that Corporate Social Responsibility (CSR) is unable to mediate

the effect of Free Cash Flow on Financial Performance because companies may need to

evaluate and improve their financial strategies to ensure healthy free cash flow, despite

CSR practices undertaken to encourage investors to be interested in investing their capital.

Other things, such as the business side carried out by state-owned companies in the

mining, finance, and construction sectors, require effective strategies in carrying out

activities to manage free cash flow that can be used properly.

Research conducted by Elena Petrova (2017) explores the effect of free cash flow

on the relationship between CSR and financial performance in European companies. The

results show that CSR cannot mediate the effect of free cash flow on financial

performance. Studies have shown that the relationship between CSR, free cash flow, and

a company's financial performance can be complex. CSR can provide long-term benefits

not always reflected in short-term financial performance. On the other hand, Free Cash

Flow can have a more direct impact on current financial performance. Therefore,

sometimes CSR and free cash flow can affect financial performance independently,

without one variable mediating the other.

Conclusion

Based on the data obtained and analyzed, conclusions can be drawn from this study,

namely CEO Narcissism has a negative and significant effect on Corporate Social

Responsibility (CSR), Company Size has a negative and insignificant effect on Corporate

Social Responsibility (CSR), Free Cash Flow has a positive and insignificant effect on

Corporate Social Responsibility (CSR), CEO Narcissism has a negative and significant

effect on Financial Performance, Company Size has a positive and insignificant effect on

Financial Performance, Free Cash Flow has a negative and significant effect on Financial

Performance, Corporate Social Responsibility (CSR) has a positive and significant effect

on Financial Performance, Corporate Social Responsibility (CSR) is unable to mediate

The Effect of CEO Narcissism, Company Size, and Free Cash Flow on Financial Performance

through CSR in SOEs on the IDX 2018-2022

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2793

the influence of CEO Narcissism on Financial Performance, Corporate Social

Responsibility (CSR) is unable to mediate the influence of Company Size on Financial

Performance, Corporate Social Responsibility (CSR) is unable to mediate the effect of

Free Cash Flow on Financial Performance.

Gunawan Hadi Prastiyono, Andini Nurwulandari

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 6, Juny 2024 2794

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