University of Amsterdam researchers divided 150 participants into groups of three. One in each was made leader and the other two were told they could advise, but that the leader would make the decision, the Daily Mail reported.
The groups were then supposed to select the best candidate for a job.
Some of the 45 items of information about the candidates were provided to all three in the group, and some to only one. They would not pick the best candidate until they used all the information - a test of communication.
The narcissism of the leaders was then gauged and their effectiveness was rated.
Group members rated the most narcissistic leaders as most effective, but actually the groups led by the biggest egotists never chose the best candidate.
"There's no doubt narcissism can sometimes be useful in a leader," Psychologist Barbora Nevicka, who led the study, said.
"But... good leaders facilitate communication by asking questions and summarising the conversation - something narcissists are too self-involved to do," Nevicka added.
The study will be published in the journal Psychological Science.