Executive Narcissism and the Power of Persuasion: Evidence from the Laboratory and Sell-Side Analyst Valuations

Abstract

Although prior research has found that firms led by narcissistic executives experience numerous detrimental effects, narcissistic individuals are nevertheless more promotable, enjoy longer tenures, and earn higher compensation. These labor market outcomes suggest that firms must accrue some benefits from executive narcissism. We provide evidence of one such benefit: the ability to positively influence external stakeholder perceptions of the firm. In a laboratory setting, we find that more narcissistic individuals are more likely to engage in persuasion to elicit higher firm valuations from financial analysts, especially when the analyst is more influential with investors. We supplement these results with archival evidence from sell-side analyst valuations and conference call transcripts. When CFOs are more narcissistic, analysts’ target price forecasts are overly optimistic and economically unjustified by ex-post stock returns. Conference call transcripts reveal that more narcissistic CFOs exhibit greater levels of engagement with analysts, speak more optimistically, and are more likely to use argumentative prose and corporate euphemisms. Collectively, the evidence suggests that more narcissistic CFOs use their persuasive skills to positively influence analyst perceptions of the firm.