Alternative (or complementary) theory to CEO narcissism

In an earlier post, I noted recent corporate governance literature suggesting that narcissist CEOs, who are identified by criteria that include their pay relative to that of other company officials, tend to perform worse in various ways, such as by reason of their taking undue risks.

There's also a recent paper suggesting that high-paid CEOs tend to perform worse than other CEOs through an entirely different mechanism.  According to the abstract:

"CEO pay is negatively related to future stock returns for periods up to three years after sorting on pay.  For example, firms that pay their CEOs in the top ten percent of excess pay earn negative abnormal returns over the next three years of approximately -8%.  The effect is stronger for CEOs who receive higher incentive pay relative to their peers.  Our results appear to be driven by high-pay induced CEO overconfidence that leads to shareholder wealth losses from activities such as over-investment and value-destroying mergers and acquisitions."

Some are born narcissistic, others achieve narcissism, and yet others have narcissism thrust upon them.  And no doubt, to paraphrase Joseph Heller's line in Catch-22 about Major Major Major and mediocrity, for some CEOs it is all three.