CEO Implicit Motives: Their Impact on Firm Investment and Firm Performance; Using 6160 annual CEO letters to shareholders for 585 S&P 500 companies for the period 1992 to 2010 to examine how CEO implicit motives impact the quality of their judgment and decision making
May 8, 2013 Leave a comment
CEO Implicit Motives: Their Impact on Firm Investment and Firm Performance
Kevin J. Veenstra McMaster University – DeGroote School of Business
April 30, 2013
Abstract:
Using 6160 annual CEO letters to shareholders for 585 S&P 500 companies for the period 1992 to 2010, I examine how CEO implicit motives (need for Achievement, need for Power, and need for Affiliation) impact the quality of their judgment and decision making. I find that while implicit motives for CEOs as a group have not changed significantly over time, there is a marked relationship between the competitiveness of a company’s industry type and the implicit motive attributes of the CEO it hires. Using revenue growth, size adjusted stock returns, return on assets, and Tobin’s Q as proxies for JDM quality, I show that after controlling for firm and year fixed effects, performance is increasing in a CEO’s need for power and decreasing in a CEO’s need for achievement; and that the effects of implicit motives are persistent, even three years after being measured. My results suggest that, in addition to characteristics such as functional career track, military experience, and number of external board seats held, implicit motives play a significant role in the determination of what makes each CEO unique and drives subsequent firm performance. My results have practical implications for many company investor relations departments who in recent years have been discontinuing the annual CEO letter, but may have not considered this useful disclosure role.
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