Beware of CFOs with Large Signatures

John Hancock rallied a nation with his large autograph on the Declaration of Independence, but new research from the University of Maryland’s Robert H. Smith School of Business shows that signature size on corporate financial statements can signal far less noble intentions.

The paper, featured in the Journal of Accounting Research, finds that chief financial officers with large signatures are more willing to exploit others and bend the truth in their favor. Authors include Smith accounting professor Nick Seybert and 2015 Smith PhD graduate Charles Ham — along with coauthors from Rice University and the University of North Carolina at Chapel Hill.

Specifically, the size of CFO signatures on notarized documents filed with the Securities and Exchange Commission predicts the likelihood that companies will inflate their earnings and relax internal controls. “Most importantly,” Seybert says, “financial restatements are more likely to be needed.” 

The researchers were not so much interested in signature size for its own sake, but rather as an outward measure of narcissism. Ham, a professor at Washington University in St. Louis, says the first barrier to studying the personalities of corporate executives is access. “In an ideal setting, you would be in direct contact with executives and have them take a personality test,” he says. “But that’s not usually possible.” 

Other researchers have tried using proxy indictors such as the size of photographs in executive bios, but senior leaders do not usually control such things. “A signature comes directly from the executive,” Ham says. “We used two laboratory tests to establish the link between signature size and narcissism.” 

Ham says many people consider narcissism an advantage in the C-suite. “When people think of narcissism, their first thought is Steve Jobs,” Ham says. “They think of it as a good trait.” 

Narcissism includes seven dimensions, including potentially positive attributes such as self-confidence. But the research connects signature size only to the dark dimensions of narcissism, such as exploitativeness and authoritativeness. “We’ve looked for that silver lining,” Ham says. “And we haven’t found it.”

Seybert says the outcome came as a surprise. “We didn’t predict at first that signature size would be related only to the dark elements of narcissism,” he says. “But that’s what we found.”

The team reached its conclusions after analyzing the signatures of more than 500 CFOs. Researchers simply drew a rectangle around the extreme points of each autograph and measured the area per letter. Using notarized SEC statements worked well because the documents are public and provide a standardized canvas for comparison purposes. 

“We controlled for factors such as gender, tenure and corporate history,” Seybert says. “We also measured the size of CEO signatures to determine the interplay — and to see if it was really the CFO driving the oversight process.”

Although CEO narcissism can hurt corporate performance — something the same authors measured in a 2013 study — they found that CFOs have the greatest influence on financial reporting decisions. Besides Seybert and Ham, co-authors include professors Mark Lang at the University of North Carolina at Chapel Hill and Sean Wangat Rice University.

Read more: CFO Narcissism and Financial Reporting Quality is featured in the Journal of Accounting Research.