Monday, July 1, 2013

CEO Narcissism


Making his second appearance in a row as a guest blogger is Dr. Richard Roll. Although much of our discussions in the textbook discuss the right way for corporate decision-making (a positive NPV), other factors can affect decisions and results in corporations. Here, Dr. Roll discuss how narcissism can affect the results of mergers and acquisitions. 

CEO narcissism seems to influence the takeover process.

In mergers and acquisition (M&A) events, more narcissistic target firm CEOs obtain higher bid premiums; i.e., higher offers relative to the previously prevailing market price.

Acquiring firm shareholders react less favorably to a takeover announcement when the target CEO is more narcissistic. In that case the acquiring firm’s stock price falls upon the M&A announcement. 

Among acquiring CEOs, narcissism is associated with initiating deals and negotiating faster.

Acquirer and target CEO narcissism are both associated with a lower probability of deal completion. They also make it less likely that the target CEO will be employed by the merged firm. 

All these results hold after controlling for acquirer and target CEO overconfidence, which suggests that narcissism captures a distinct personality trait.

In this research, narcissism is measured by the relative prevalence of first person personal pronoun usage in more than 1,700 transcripts of CEO extemporaneous speeches and interviews. CEOs in general have higher than average narcissism scores but there is substantial variation in the scores across CEOs.