Bragging Rights: Does Male Boasting Imply Enhanced Valuation in Women?

Totally interesting and riveting study about, what else could matter, men of course.

Abstract

We examine 500 men over 1999-2014 that publicly characterize their annual performance with women with extreme positive language. We find that only 18% of such men increase in peceived personal value, while nearly 75% have insignificant increase of value, and the remaining 7% actually destroy any value estimation that women harbored. Our evidence suggests that men often base their positive claims on high raw sexual returns or strong relative semi-sexual performance. In comparison to men that generate positive abnormal returns without boasting, our sample men tend to have superior accounting performance. These results show that boasting about performance is rarely associated with value creation and is consistent with male narcissism.

Ok, I edited the title and the abstract of the study slightly to stay relevant in the current dominating discussion. This is the correct one:

Bragging Rights: Does Corporate Boasting Imply Value Creation?

Abstract

We examine all S&P 500 firms over 1999-2014 that publicly characterize their annual performance with extreme positive language. We find that only 18% of such firms increase shareholder value, while nearly 75% have insignificant performance, and the remaining 7% actually destroy shareholder value. Our evidence suggests that firms often base their positive claims on high raw returns or strong relative accounting performance. In comparison to firms that generate positive abnormal returns without boasting, our sample firms tend to have superior accounting performance. These results show that boasting about performance is rarely associated with value creation and is consistent with executive narcissism

6. Summary and Conclusions

In this study, we examine the incidence of corporate boasting to examine whether CEOs either understand or apply the principle of shareholder wealth maximization when they discuss corporate performance. We argue that corporate boasting conveys to shareholders and other stakeholders the company’s belief that its performance has been outstanding. From the shareholders’ perspective, outstanding performance should translate into an increase in shareholder wealth, which occurs with positive abnormal returns. Perhaps not surprisingly, we find that boasting is not generally associated with increases in shareholder wealth. While companies generate increases in shareholder wealth about 20% of the time, about 11% of the time they actually destroyed shareholder wealth. We find that when boasting occurs, it is often motivated by strong accounting and systematic stock price performance. While we cannot prove why boasting occurs, we argue that it is highly consistent with narcissistic CEOs.

The importance of these findings resides in their insights regarding how CEOs and other executives think about performance as well as the forces that shape their response to it. If executives are unable or unwilling to assess what constitutes gains in shareholder wealth then perhaps they are unable or unwilling to frame other strategic corporate decisions in terms of changes to shareholder wealth. For instance, capital expenditures are normatively made on the basis of present value. But when CEOs are unware of or unwilling to incorporate a shareholder wealth perspective in their capital budgeting process, corporate capital investment will be nonoptimal. Closely related is the company’s cost of capital and an understanding of the equilibrium trade-off between risk and required return in the capital markets, which represents the opportunity cost to shareholders. Merger and acquisition decisions require an understanding of synergy creation as well as estimating current and future risk in the context of maximizing shareholder wealth.

Our findings can suggest one or both of two disturbing implications. The first is that there is a surprisingly limited understanding by CEOs of the real effect on shareholder wealth generated from corporate decisions. Our evidence that CEOs are more focused on accounting performance, to the point where they might claim that the firm had experienced an excellent year even though the company had destroyed shareholder wealth is especially troubling. Another conclusion, however, could be that executives understand the concept but simply ignore it. Executive narcissism is consistent with both conclusions. Either way, the public statements companies make about their performance are largely inconsistent with the wealth changes experienced by shareholders.

Pdf here