CEO Implicit Motives: Their Impact on Firm Performance

ABSTRACT Using 4,838 annual CEO letters to shareholders for 397 S&P 500 companies from the period 1993 to 2010, this paper examines how CEO implicit motives impact a firm's financial performance. The results show that after controlling for firm and year fixed effects, financial performance increases with a CEO's need for power and decreases with a CEO's need for achievement and need for affiliation. Implicit motives play a significant role in the determination of what makes each CEO unique, and they have persistent effects, even three years after being initially measured. The practical significance of these findings is that firms should carefully consider implicit motives when selecting a CEO. Boards of directors would do well to consider CEO implicit motives as part of their corporate governance “best practices.” Institutional/retail investors may be able to use CEO letters as a useful source of information for making investment decisions.