Narcissism is a bad sign: CEO signature size, investment, and performance
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Using the size of CEO signatures in SEC filings to measure individual narcissism, we find that CEO narcissism is associated with several negative firm outcomes. We first validate signature size as a measure of narcissism but not overconfidence using two laboratory studies, and also find that our measure is correlated with employee perceptions of CEO narcissism used in prior research. We then use CEO signatures to study the relation between CEO narcissism and the firm’s investment policies and performance. CEO narcissism is associated with overinvestment, particularly in R&D and M&A expenditures (but not in capital expenditures). Firms led by narcissistic CEOs experience lower financial productivity in the form of profitability and operating cash flows. Despite this negative performance, narcissistic CEOs enjoy higher absolute and relative compensation. Our results are robust to several alternative specifications, including controlling for a popular options-based overconfidence measure used in prior research.
KeywordsCEO narcissism Signature size Investment Performance Compensation
JEL classificationG30 G40 M10 M40
We thank Patricia Dechow (the editor), two anonymous reviewers, Jennifer Conrad, David Hirshleifer, Michael Kimbrough, Andrew Knight, Mark Lang, Christian Lundblad, Justin Leiby, Merih Sevilir, Geoff Tate, Devin Williams, Paul Zarowin, Emanuel Zur, Yue Zheng, Richie Zweigenhaft, and seminar participants at the FARS 2013 midyear meeting, AAA 2014 annual meeting, University of Baltimore, Emory University, University of Florida, and University of Maryland for helpful comments. We thank Jin Kyung Choi, Jeff Ouyang, Chase Potter, and Kai Wang for research assistance.
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