The dark side of leadership

Question 1

What is the paper related to this topic?

Answer 1

Reality at odds with perceptions: Narcissistic Leasers and Group Performance Nervicka et al (2011)

Question 2

What is the paper about?

Answer 2

Narcisstic individuals are perceived as arrogrant and overly dominant but they are skileld at radiating an image of an effective leader, however the presence of them leads to poorer group performance as they inhibit information exchange between group members.

Question 3

What are Narrcissits?

Answer 3

They overestimate positive attributes and underestimate negative ability. They also lack responsibility ( never their fault). They are extrovert, good liars and like to feel powerful.

Question 4

In terms of narcisstic CEO’s what do we tend to find?

Answer 4

We need to find a positive correlation with overinvestment in capital expenditures and accquistions ( less risk averse and aggressive) take out more dividends

Question 5

Why do Narrcistic CEO’s pay themselves higher compensation and dividends?

Answer 5

They have an inflated self perception and hence demand to be paid more.

Question 6

Do narcissists like feedback from others and from prior decisions?

Answer 6

They don’t learn from mistakes because they don’t believe in the mistakes they have made and don’t listen to others.

Question 7

What does this show?

Answer 7

Shows that CEO’s that are paid more have worse company performance and vice versa.

Question 8

Does stats show that men trade stocks more than women?

Answer 8

Yes they do and do at wrong times and invest in like momentum stocks, acting like they have skills but they don’t. Whereas women acknowledge when they don’t have the skills. Hence have worst returns than female investors.

Question 9

What has women CEOs and company directors pay a lower premium in takeovers got to do with Narracism?

Answer 9

Narracistic men are more likely to pay higher premium, as they believe when they are CEO it will be worth it in the future.

Question 10

So acquisitions should increase Shareholders wealth, but why do so many leads to losses?

Answer 10

CEO may be optimistic
CEO may overestimate own ability to make the merger work.

Question 11

What is winners curse which is a reason why so many accqusitions lead to losses?

Answer 11

The party who wins an auction of a commodity of uncertain value with a fair number of bidders typically pays more than the asset is actually worth.

Question 12

We see that CEO’s do not exercise a share option even when its at the money but wait to the end of stock option because of what…

Answer 12

OVERCONFIDENCE

Question 13

-So now lets focus on the experiment, there are 150 people, groups of 3, given a team task.
-1 in each group randomly selected as a leader
- Told it is a group decision making task, but the leader is responsible for the final decision.
What was the group task?

Answer 13

Group members read descriptions of 3 candidates for a position of secret agent, but the members get different sets of info so they share information to identify best candidate, they got 15 traits in total.
It is quite clear that one of the candidates is the best candidate.
They discuss in group to come to final decision then do a questionnaire.

Question 14

So each group member measured the level of Narcissism they had with a Narcissistic Personality Inventory and also group members had to feel survey in regarding the perception of leader’s authority and effectiveness.
They also asked about about info exchange, wanted to specifically look at the ratio of unshared items exchanged to total number of unshared items. Why do we care about this?

Answer 14

The more info shared the easier it is to get to the best candidate we wanted.

Question 15

What were the results?

Answer 15

1) The more narcissistic the leader was the more the other group member felt the leader had authority and effective. ( people like these narcisstic leaders) .
2) We found a negative correlation between leader narcissism and info exchange.
3) info exchange had a positive effect on performance, but leader narcissim had a negative effect on performance

Question 16

Why is there a negative correlation between leader narcissism and info exchange?

Answer 16

They stiffle information sharing and can undermine followers independence. They are biased and focused on their information rather than involve group members.

Question 17

Why are overconfident individuals selected as CEOs?

Answer 17

Former CEO’s are on board, who themselves are overconfident people.
Overconfident people are perceived as great leaders.

Question 18

Are overconfident CEOs more or less likely to use cash rather than equity finance acquisitions?

Answer 18

Cash because they don’t want to issue shares because they feel shares are undervalued in the market.

Question 19

Remember on average men are more narricisstic than women but does it mean women are not narcisstic?

Answer 19

No they are some.

Question 20

If a firm has access to external capital markets, should its investments depend on cashflow?
Why do we observe a correlation between investment and cashflow?

Answer 20

No it shouldn’t.
If CEO is overconfident they expect a greater return than should be expected, so they might think its positive NPV but they might be able to convince bank, so wouldn’t be able to get loan, so that means low cash flow = low investment and high cash flow = high investment.

Question 21

Do rational people put in more effort for team payment or for individual payment? What about team course work versus individual course work?

Answer 21

If we assume rationality to be that individuals want to maximise their own payoff, then they will choose to put more effort for individual payment because they can control the efforts of themselves but cannot of others. In terms of team coursework versus individual coursework rational people are more likely to be more effort into team coursework, as effort which is costly (they want to reduce this) can be diversified away through the help of other team members.

Question 22

Answer 22

We see that narcissism there is a negative correlation with Narcissism and ROA.
We also see a positive correlation with Narcissism and overinvestment.