Positive Impressions of CEOs Boost IPO Prices


Research by Michigan Ross Professor Greg Miller shows the importance of first impressions to investors.

Common wisdom puts a lot of importance on first impressions. New research from Michigan Ross backs that up.

Professor Greg Miller and two colleagues, both former Ross PhD students, found that intuitive positive impressions of management leads to higher IPO prices. They made use of a huge database of saved IPO “roadshow” management presentations and found a strong correlation with higher first-day trading prices.


“The bottom line here is that people’s intuitive assessment of management ends up in price,” says Miller, Ernst & Young Professor of Accounting. “We don’t know if it’s conscious or unconscious, but somehow they are judging the quality of the person and it’s reflected in the stock.”

Miller and co-authors Elizabeth Blankespoor, PhD ’12, of Stanford University and Bradley Hendricks, PhD ‘15, of Kenan-Flagler Business School at the University of North Carolina, present their findings in the working paper “Perceptions and Price: Evidence from CEO Presentations at IPO Roadshows.”

Miller, Hendricks, and Blankespoor wanted to find out whether positive or negative impressions of management mattered when it came to stock prices. The best way to determine that was through the IPO process. There’s a limited time during that process when management can publicly present data, and market reaction is easy to track. A relatively new law requires firms to post a video of IPO roadshows for a few weeks of the process, and Hendricks captured these videos over a period of more than four years.

In the experiment, the authors created three 10-second clips from randomly selected IPO videos. These clips were taken from the first five minutes of the presentation so that the executives looked as fresh as possible. They then stripped all context from the viewers — the sound was modified at low and high frequency to retain tone, but blocked all words. Participants rating the videos didn’t know where the clips originated or about the people in them.

They were simply asked to rate the people in the video on competence, trustworthiness, and attractiveness. The researchers then combined these ratings to get an overall measure of perceptions of management.

Miller and his co-authors found a positive correlation between how the executives in the video clips were rated and final firm IPO valuation, proposed valuation, and price revisions. Companies with highly rated impressions of managers also secured higher-quality underwriters than those who rated poorly.

“There was no evidence before of whether investors used intuition to judge the quality of management — whether on purpose or not — in a way that’s reflected in firm value,” Miller says. “Our study suggests this occurs.”

The question now is what to do with that information. Should executives on IPO roadshows be coached so they’re viewed more positively? If this is an unconscious process, would that even make a difference?

“One of the obvious follow-up questions is that now that we’ve seen this is in the price, is it something that can be taught?” Miller wonders. “We don’t have any evidence one way or another, although the literature would suggest these are things we do subconsciously. Can you really train away inherent characteristics? We answered one question, but we opened up a few more.”


Media Contact: michiganrosspr@umich.edu