Managers' narcissistic tendencies may fundamentally affect whether a company makes risky or safe moves as a response to the firm's above-aspiration performance, according to a new study published in Strategic Management Journal . In a study that helps to clarify prior conflicting research, the researchers find evidence that high-narcissism CEOs respond to above-aspiration performance with more acquisitions, while low-narcissism CEOs avoid acquisitions.
The study authors — Korcan Kavusan of Erasmus University, Daniel Z. Mack of Singapore Management University, Matthew P. Mount of Deakin University, and Gokhan Ertug of Singapore Management University — were motivated to determine why firms sometimes make major moves, such as acquisitions, even when their performance exceeds expectations. Existing scholarly literature was inconsistent, suggesting there was a missing piece of the puzzle.
"Some studies suggest that success discourages change because there is no need to fix what is working," Kavusan says, "while others argue that it encourages change by providing extra resources and managerial discretion."
But management research has also suggested that firm actions are often shaped by the personal goals of managers — and narcissism in particular is often linked to strong personal ambitions. As such, the team chose to study whether narcissistic leaders are especially inclined to pursue acquisitions, especially when firm performance is strong and they have the discretion to act.
Using data from publicly listed U.S. manufacturing firms in the S&P 1500, the researchers explored whether high-performing firms make more acquisitions when led by narcissistic CEOs and fewer when led by less narcissistic executives. In addition to data on acquisition activity, they also collected indicators of CEO narcissism established in prior research, along with firms' performance relative to their aspirations over time. Through statistical analysis, they indeed confirmed their hypothesis that firms led by more narcissistic CEOs tend to pursue more acquisitions when performance is high, and firms led by CEOs without strong narcissistic tendencies make fewer acquisitions.
"While acquisitions are often pursued to gain new resources, expand capabilities, and accelerate growth, many fail to achieve their intended goals and instead erode shareholder value," Kavusan says. "Our findings show that these decisions are not always guided purely by organizational motives, as they should be in an ideal world, but can also be influenced by the personal ambitions of top executives."
For boards, investors, and managers, the study emphasizes the need to better understand the personal drivers of those advocating for an acquisition: If stakeholders can ensure that acquisition decisions are aligned with a firm's real needs and capabilities — not just a leader's personal ambitions — they can increase the chances that the acquisitions create value.
To read the full context of the study and its methods, access the full paper available in the Strategic Management Journal .
About the Strategic Management Society
The Strategic Management Society (SMS) is the leading global member organization fostering and supporting rigorous and practice-engaged strategic management research. SMS enjoys the support of 3,000 members, representing more than 1,100 institutions and companies in more than 70 countries. SMS publishes three leading academic journals in partnership with Wiley: Strategic Management Journal, Strategic Entrepreneurship Journal, and Global Strategy Journal. These journals publish top-quality work applicable to researchers and practitioners with complementary access for all SMS Members. The SMS Explorer offers the latest insights and takeaways from the SMS Journals for business practitioners, consultants, and academics.
Click here to subscribe to the monthly SMS Explorer newsletter.
Click here to learn more about the programs and opportunities SMS has to offer.
