Watch me go big: CEO narcissism and corporate acquisitions
ISSN: 1940-5979
Article publication date: 4 September 2020
Issue publication date: 22 October 2021
Abstract
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/approach
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/value
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
Acknowledgements
We thank Niklas Vestergaard Andersen, Nicholai Theodor Hvistendahl, Søren Christian Ilvig, Kasper Jensen, Jacob Kring, Alex Lønstrup Kristensen, Jeppe Garder Kristiansen, Jonas Bejer Kristoffersen, Henrik Hansen Købke, Laurits Lærke, Rune Petersen, Steffan Petersen, Matthias Elkjær Schrøder, Sune Lund Simonsen, participants at the Academy of Behavioral Finance & Economics 2019 Annual Meeting, and seminar participants at Aarhus University, Florida Atlantic University, University of Central Florida and University of South Florida for helpful comments and suggestions. We bear sole responsibility for all remaining errors and omissions.
Citation
Aabo, T., Als, M., Thomsen, L. and Wulff, J.N. (2021), "Watch me go big: CEO narcissism and corporate acquisitions", Review of Behavioral Finance, Vol. 13 No. 5, pp. 465-485. https://doi.org/10.1108/RBF-05-2020-0091
Publisher
:Emerald Publishing Limited
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