Being really confident can have its rewards. From the third in a sequel of papers, Accounting Professor Sean Wang further analyzes how the personality trait of narcissism impacts the C-suite through the chief financial officer role. In new research, Wang of SMU Cox and coauthors explore why narcissists are more promotable, enjoy longer tenures, and earn higher compensation than their peers. They provide evidence of an important benefit—the ability to positively influence external stakeholder perceptions of the firm.
Wang’s research delves into the characteristics of narcissistic executives and how their personalities impact corporate decision-making and financial performance. His prior two papers have shown that narcissistic CEOs, due to their personality traits, tend to overinvest and that those capital expenditures can be, on average, subpar. However, Wang notes that narcissistic executives continue to hold prominent positions within organizations. And there are some benefits to their style, particularly in the financial domain.
In the research, “We found that narcissistic CFOs exhibit numerous benefits in the sense of possessing better than average, even exceptional, persuasive abilities,” Wang offers. “This translates into their ability to illicit higher valuations from sell-side analysts.” These CFOs exhibit greater levels of engagement with analysts, speak more optimistically, and are more likely to use argumentative prose and corporate euphemisms. The study suggests that narcissistic CFOs use their persuasive skills to positively influence analyst perceptions of the firm.
Another story from the research, according to Wang, implies that if narcissists have exceptionally high esteem, then they believe they are better suited for a job. “Clearly confidence or portraying confidence is going to help one’s persuasive abilities,” he adds. To measure narcissism, the researchers used a Narcissistic Personality Inventory Test in a laboratory study. Coupled with the personality test, Wang notes that they “leaned on prior psychology research that suggested signature size can be a proxy for narcissism and confirmed this in several experiments in our prior papers.”
The basic setting used in the real-world data portion of the study is the interface between financial analysts and the way in which they cover the firm. As information intermediaries, analysts collect information about the firm, often from CFOs, through private communications and in public earnings and conference calls. The analyst reports their opinion or judgment about the firm for a given quarter or a year. “We can’t capture everything empirically, but we can capture their valuations, which are clearly part of a database of their research reports,” says Wang. “We can also capture some of the issues being discussed on a conference call.”
Narcissistic CFOs tend to be optimists. Most of the optimism is coming with evaluations of the firm’s prospects versus earnings forecasts. Wang explains, “One classic finding in analyst forecast research is that there is a walkdown in earnings forecasts over time, such that longer-horizon forecasts tend to be more optimistic.” He continues, “We find that this trend is more pronounced for firms with narcissistic CFOs. However, unconditional optimism seems to be most embedded in perceptions of long-term growth opportunities and therefore in stock price valuations.”
To illuminate the findings about external stakeholder engagement, the authors triangulate analyst reports with public conference calls to study the executives’ effect on the firm. “We were able to document that these types of CFOs have greater call engagement, speaking for a longer amount of time, and tend to dominate the call,” Wang adds. “We show evidence that they can persuade.”
The paper “Executive Narcissism and the Power of Persuasion: Evidence from the Laboratory and Sell-Side Analyst Valuations” by Sean Wang, Cox School of Business, Southern Methodist University, Charles Ham of Indiana University, Mark Piorkowski of Indiana University, and Nick Seybert of University of Maryland is under review.
Written by Jennifer Warren.