Watch Me Go Big: CEO Narcissism and Corporate Acquisitions
Review of Behavioral Finance, Forthcoming
43 Pages Posted: 12 Feb 2021
Date Written: June 24, 2020
Purpose – The purpose of this paper is to investigate the role of CEO narcissism in corporate acquisitions with a focus on frequency and size and furthermore to examine the subsequent stock market reaction.
Design/methodology/design – The authors investigate 751 acquisitions made by 158 UK nonfinancial firms and 202 CEOs in the 10-year period 2007-2016. The authors use the ratio of first-person singular pronouns to total first-person pronouns in CEO speech as the main proxy for CEO narcissism but the results are robust to the use of signature size and picture as alternative measures.
Findings – The authors find that increased CEO narcissism is associated with an increase in M&A expenditures, an increase in deal size, and a decrease in deal frequency. Thus, the authors find that narcissistic CEOs favor size over frequency (“go big”). Furthermore, the authors find that the stock market reacts less favorably to acquisitions announced by firms run by narcissistic CEOs.
Originality – The paper contributes to upper echelon research by investigating the association between CEO narcissism and corporate decisions in a UK setting. More specifically, the paper contributes to the existing literature by investigating how CEO narcissism is associated with corporate acquisitions in terms of the size and frequency of deals and how such irrational behavior is penalized by the stock market. Previous literature has focused on the more broad association between CEO narcissism and M&A expenditures.
Keywords: Behavioral corporate finance, CEO narcissism, corporate acquisitions
JEL Classification: G34, G40
Suggested Citation: Suggested Citation