Top Portuguese managers with highly positive views of their own performance cannot substantiate these inflated claims with objective accounting performance
Narcissism is a personality trait that is characterized by the excessive self-love, admiration, and exaggerated attention to the self. Narcissists tend to have inflated self-views and highly value their worth and accomplishments. They are confident about themselves and their capacities, ranking their performance and skills above others. Not surprisingly, they focus on achieving success and are attracted to leadership positions, especially those at the very top of the organization ladders. But are these exacerbated views of the self, ambition, and power in narcissistic managers related to better performance?
A study1 finds that narcissistic top managers have higher levels of self-reported performance, but there is no correlation between self-reported performance measures and objective performance measures. Or in other words, narcissistic top managers see themselves as better performers than they are in reality as there is no translation of their self-views in terms of actual accounting numbers. The study covered 968 top managers (298 females and 670 males) from non-listed firms in Portugal, with ages ranging from 21 to 74 years old, and investigated whether narcissism affects self-reported measures of performance by comparing those self-reports to objective (accounting) performance measures such as the return on assets (ROA) and return on sales (ROS). The study concluded that narcissistic managers did not outperform non-narcissistic managers.
Narcissism has a bright and a dark side. On the one hand, the bright side of narcissism translates into positive outcomes such as effectiveness in recovering from performance shocks or higher performance variability. On the other hand, it has a dark side, and these managers “can pursue strategies that can be detrimental for the firms. Despite, narcissism, per se, is not sufficient to explain firm performance, it can certainly play an important role. In their pursuit for glory and status, narcissists “work for themselves” and are willing to leave the best interests of their firms in second to their ambitions. To that end, besides the possibility of manipulation of the financial statements, narcissistic top managers can pursue their own personal agendas and take actions that enhance their position and reputation such as pay themselves too much, focusing too much on short-term performance (shortermism), acquiring other firms (overinvestment), among others.
The study also suggest that even accounting numbers are not exempt from the actions of narcissistic managers as one could argue that top managers may manipulate accounting measures. Indeed, previous evidence showed that narcissistic managers engage in some form of manipulation in order to elevate earnings. However, investors can use publicly available information to detect earnings manipulations by managers but cannot detect the narcissism level of managers. Even more difficult is to understand if managers incorporate their inflated views in the self-reported measures and how that affects performance.
Overall, in light of such results, stakeholders are advised to use objective measures to assess a firm’s performance but must always keep in mind that manipulation is possible, especially if they suspect that the top managers have narcissistic characteristics because away from the magic mirror on the wall, narcissistic managers are not the greatest performers after all.
1 Maria João Guedes “Mirror, mirror on the wall, am I the greatest performer of all? Narcissism and self-reported and objective performance”. In Personality and Individual Differences, 108, 182-185.