A growing body of research has, in recent years, shown that CEO narcissism is associated with some unfavourable corporate outcomes.

Notable among these are poor financial performance, overinvestment, and excessive risk-taking. Lancaster University’s new analysis provides evidence that narcissist CEOs promise more than they deliver, using the case of share repurchases.

The new study assessed the impact of CEO narcissism on the share repurchase activities of S&P 500 firms in the period between 2000 and 2008.

For the purpose of the study, CEO narcissism was measured as the area per character of the CEO’s signature size. This was computed by drawing a rectangle that touched the edges of the CEO’s handwritten signature. CEO narcissism score is the area of the rectangle divided by the number of characters in the CEO’s name.

The study found strong evidence that narcissist CEO-managed firms are more likely to announce more share repurchases and target a higher financial amount. However, they are unlikely to follow through to make an actual purchase of what they announce, and even if they do so, they then target a lower financial amount.

Buy back record-breakers

During the 2020 US presidential elections, share repurchases attracted negative comments from both Republican and Democrat presidential candidates because of the increasing amount of cash spent on such activities. Accordingly, Goldman Sachs reported that S&P 500 firms repurchased a record $806bn in 2018—well above the $550bn in 2017.

The new study argues that the likelihood of narcissist CEOs announcing more repurchases but failing to complete them is driven by their unrealistically inflated self-view. This, coupled with their grandiosity, is likely to make narcissist CEOs perceive their firm’s shares as being priced lower by the market compared with the inflated price they have for their firms.

In view of this, they display their disagreement by announcing more share repurchases. Because narcissist CEOs announce repurchases based on the biases they have for their firms, they fail to follow through to complete what they announced.

The results of this study have important implications for policymakers and managers. As CEOs are key decision-makers, their psychological traits—including narcissism—are essential for the firm’s decisions. Research has also associated CEO narcissism with authority, self-reliance and supremacy, which can foster leadership effectiveness, promote company performance, and be attractive to loyal employees.

Narcissistic CEOs are likely to act according to their characteristics and perceptions and announce more repurchases. Thus, companies recruiting CEOs would do well to consider their psychological traits and capabilities, which may also influence the firm’s path for the announcement of share repurchases.

Evans Boamah is a postgraduate researcher at Lancaster University Management School