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.
