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Can you Judge an IPO by the
Appearance of the CEO.

Here is something from WSJ.com that might interest you:




Wall Street is hardly a beauty pageant. But a new study suggests that when it comes to taking a company public, appearances can matter.

The more a chief executive’s gestures and manners exude competence during investor pitch sessions, the more likely he or she is to have a higher-priced IPO, according to the study conducted by Elizabeth Blankespoor of Stanford University’s Graduate School of Business, Bradley Hendricks of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, and Gregory Miller of the Stephen M. Ross School of Business at the University of Michigan.

Investors often like to consider themselves beyond such superficial influences. Instead, many believe they are swayed only by impressive revenue projections, management pedigree or market-share forecasts.

“You have the information already in a prospectus. You have information about the CEO’s background,” said Ms. Blankespoor. “What’s important about actually meeting them?”

To answer that question, the professors used the impressions of 900 random people, who watched 224 CEOs make their pitches.

The participants were told nothing about the CEO or the company. (If a participant recognized a CEO, that response was excluded from the survey.)

Each participant was asked to view 30-second video clips of the presentations—which obscured what the person was saying, to make sure the participants weren’t swayed by the pitch itself—and then rate the CEOs on three criteria: Attractiveness, competence and trustworthiness.

They found that perceptions of the CEO are a strong predictor of an IPO’s price. The study found that for the average CEO, a 5% higher rating on perceptions correlated to an IPO price roughly 11% higher than the price that would be expected based on fundamentals alone.

The researchers adjusted for other factors, including the CEOs’ gender or educational background, or whether more profitable companies tended to have more impressive-seeming CEOs.

A high rating on a CEO’s competence was the best predictor of a higher IPO price, followed by attractiveness. Trustworthiness was the least important factor, though it still mattered.

The result offers a potential explanation of why investors consider roadshows important, said Ms. Blankespoor. “Part of a CEO’s job is to have a presence…and convey the company’s story,” she said.

Notably, companies run by CEOs with higher impression scores still had better-performing shares a year after the IPO. This may suggest that investors aren’t just hoodwinked by a smooth talker, but may be making a rational judgment that a CEO who impresses bodes well for the company’s future performance, Ms. Blankespoor said. “CEOs are going to make initial impressions over and over again,” she said.

Write to Telis Demos at telis.demos@wsj.com

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