Narcissistic CEOs more likely to use accounting tricks to exaggerate company profits: study

Updated

Self-obsessed company executives are more likely to use accounting tricks to conjure up exaggerated profits than their more introverted peers, a new study has found.

Alex Frino, the dean of the Macquarie Graduate School of Management in Sydney, spent years examining narcissism among chief executives at big companies.

His latest study drew a link between managers who constantly talked about themselves and those who cooked their companies' books.

"We've got transcripts of conversations that [CEOs] have had with analysts, and we do a frequency count of the number of times they use the first-person singular 'me', 'my' or 'I', versus the first-person plurals 'we',' us', 'our'," he said.

"And that's been shown in the psychological literature to be a fairly good predictor of narcissism among a CEO."

Professor Frino and his team studied transcripts from analyst briefings delivered by CEOs of the top 1,000 companies listed on the New York Stock Exchange between 2008 and 2012.

"We ranked those companies from those ran by really narcissistic CEOs to the least narcissistic CEOs, and broke them up into groups of 100," he said.

"We found that the 100 companies run by the most narcissistic CEOs tended to manipulate upwards their profit figures by as much as 14 per cent, whereas those run by CEOs who were the least narcissistic showed no evidence of manipulating their profit figures."

Exaggerated profits 'within the rules'

The study did not suggest that CEOs were illegally inflating their profits, but Professor Frino said some were using creative accounting strategies to convince shareholders they were booking healthier profits than they truly were.

"The accounting rules allow for some room to manoeuvre in terms of recognising revenues and recognising expenses," he said.

"Some of that behaviour probably challenges the accounting standards, but generally it's within the rules."

The researchers saw a few explanations for why vain CEOs were more likely to inflate their profits.

"Narcissistic CEOs really believe that profit figures are a reflection of their own personal performance - that if a company is doing well, it's their scorecard," Professor Frino said.

"It's their desire to be loved."

The study was unable to establish a strong link between gender and narcissism among CEOs, because only a fraction of big companies in the United States were led by women.

"The problem with that is the sample size," Professor Frino said.

"When you take the top 100 companies, only four are run by women. But when we score those women on narcissism, it's very low.

"So even though the sample is small, it's clear that women tend to be less narcissistic than men on average."

Topics: company-news, business-economics-and-finance, human-interest, sydney-2000, australia, united-states

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