CEO narcissism and the takeover process: from private initiation to deal completion. (May 2012)

“Narcissistic CEOs at target companies get higher bid premiums, while narcissistic CEOs of acquiring companies negotiate takeover attempts quicker. For both targets and acquirers, a narcissist at the helm lowers the likelihood the deal will actually happen.

Nihat Aktas, Skema Business School
Eric De Bodt, Université Lille Nord de France – Lille School of Management Research Center (LSMRC)
Helen Bollaert, Skema Business School
Richard Roll, University of California, Los Angeles (UCLA) – Finance Area

In their gut, most investors know a narcissistic CEO is cause for caution. But how do you prove that? A group of academics have come up with a possible solution.

Economists Nihat Aktas, Eric de Bodt, Helen Bollaert and Richard Roll collected samples of speech from press interviews and analyst calls with CEOs of acquiring and target companies involved in 146 M&A attempts from 2002 and 2006.

Taking a cue from research that psychologists have done on narcissism, the economists tabulated how often a CEO used first person singular pronouns, like I, me and my, in proportion to total first person pronouns, which also include we, our, etc. The higher the proportion of singular pronouns, the more narcissistic the CEO.

Their findings: Narcissistic CEOs at target companies get higher bid premiums, while narcissistic CEOs of acquiring companies initiate and negotiate takeover attempts quicker. But, for both targets and acquirers, a narcissist at the helm lowers the likelihood the deal will actually happen.

As summarised by Justin Lahart in The Wall Street Journal, 6 January 2012.

Download the full paper here: CEO narcissism and the takeover process: from private initiation to deal completion