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Size Matters -- Large CEO Signature Equals Small Performance

November 29, 2012

Greg Muraski,  301-405-5283

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

Accounting professor Nick Seybert and graduate student Charles Ham, with Sean Wang from the University of North Carolina, gathered and measured about 600 CEO signatures from annual SEC filings and 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.

Seybert said the study 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."

These CEO’s tend to make strong impressions of themselves in spite of their performance and draw richer compensation packages than their less-narcissistic counterparts. "Simply and counterintuitively, narcissism pays off for the CEO, at the expense of the firm," Seybert said. “Corporate directors should keep their CEO’s 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.”

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," said Seybert. "And despite prior findings showing risk-taking sometimes is good, we argue, with these results, that such 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."

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 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 study also is part of a recent wave of personality-based research in finance and accounting to address investor, CEO and CFO overconfidence, said Seybert, who focuses his work on the behavioral aspects of accounting. See the full study.