Size Matters — Large CEO Signature Equals Small Performance

COLLEGE PARK, Md – The size of a CEO’s signature can reveal a lot about that leader and company success. A large, embellished signature signals a heavy narcissist and diminished firm performance, concludes a study of 400 CEO signatures by researchers in the University of Maryland’s Robert H. Smith School of Business.

“Despite prior findings showing risk-taking sometimes is good, our results show that risky behavior from these narcissistic CEOs generates negative, declining performance over the long term  especially in firms that are younger, small, and-or R&D-intensive,” says Smith School accounting professor and study leader Nick Seybert, who studies behavioral aspects of accounting.

The study, currently in a working paper, draws from psychology research linking signature largeness to inflated ego, the base characteristic of the narcissistic CEO, who also is a risk taker, unilateral decision-maker and prone to dismissing feedback and blaming personal failure on external circumstances.

“This type of leader further appears to overinvest in capital expenditures and acquisitions while paying lower dividends to shareholders,” says Seybert.

The researchers gathered and measured about 400 CEO signatures from annual SEC filings, then analyzed them against the collective profitability and return on investment levels of their companies - all in the S&P 500. The findings appear in a working paper, Narcissism is a Bad Sign: CEO Signature Size and Firm Performance.

These CEOs tend to make strong impressions of themselves in spite of their performance and draw richer compensation packages than their less-narcissistic counterparts, the paper says. “Simply and counterintuitively, narcissism pays off for the CEO, at the expense of the firm,” says Seybert. “Corporate directors should keep their CEOs narcissism in-check and think twice about pursuing the ego-driven ‘superstar CEO  especially in an era of scrutiny on CEO overcompensation, which peaked in public outrage a few years ago.”

With signature size, Seybert said his study introduces a new means to measure CEO narcissism. “Prior research has looked at factors like the size of the CEO’s photo in an annual report and number of references in company press releases. However these characteristics could have more to do with the firm’s marketing philosophy, while the signature derives directly from its source and indicates personality according to decades of psychology research.”

The authors accounted for such company characteristics as size according to total balance sheet assets, book-to-market value, investment regressions, company leverage and sales growth. “We also controlled for factors possibly affecting CEO behavior such as age, gender and tenure with the firm. For example, maybe a CEO from an earlier era was taught to write large and embellishingly,” says Seybert.

The study is one in a recent wave of personality-based studies in finance and accounting to address investor, CEO and CFO overconfidence, said Seybert.

The research team also included Smith School graduate student Charles Ham and Sean Wang, University of North Carolina.

*Source: University of Maryland

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