CEO Implicit Motives: Their Impact on Firm Performance

Using 6160 annual CEO letters to shareholders for 585 S&P 500 companies from the period 1992 to 2010, this paper examines how CEO implicit motives (need for achievement, need for power and need for affiliation) impact a firm’s financial performance. The results show that after controlling for firm and year fixed effects as well as personal demographic characteristics, financial performance increases with a CEO’s need for power and decreases with a CEO’s need for achievement. Implicit motives play a significant role in the determination of what makes each CEO unique and have persistent effects, even three years after being initially measured. The practical significance of these findings is that firms do not always hire the right CEO. As such, firms 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.