CEO Emotions and Underpricing in Initial Coin Offerings

25 Pages Posted: 21 Apr 2020

See all articles by Paul P. Momtaz

Paul P. Momtaz

University of California, Los Angeles (UCLA) - Anderson School of Management; University College London Center for Blockchain Technologies

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2019

Abstract

CEO emotions are difficult to measure and hence empirically understudied. However, using artificial emotional intelligence, positive and negative affects can be identified from facial muscle contraction-relaxation patterns obtained from public CEO photos during initial coin offerings (ICOs), i.e., blockchain-based issuances of cryptocurrency tokens to raise growth capital. The results suggest that CEO affects impact firm valuation in two ways. First, CEOs’ own firm valuations conform more to those of industry peers if negative affects are pronounced (conformity mechanism). Second, investors use CEO affects as signals about firm value and discount when negative affects are salient (signaling mechanism). Negative affects can reduce firm value by up to 15%. Both mechanisms are stronger in the presence of asymmetric information and robust to tests of endogeneity.

Keywords: CEO emotions, firm valuation, initial coin offering (ICO), cryptocurrencies, artificial emotional intelligence, emotion AI, affective computing

JEL Classification: G24, G32, G41, L26, M12, M13

Suggested Citation

Momtaz, Paul P., CEO Emotions and Underpricing in Initial Coin Offerings (December 20, 2019). Available at SSRN: https://ssrn.com/abstract=3580719 or http://dx.doi.org/10.2139/ssrn.3580719

Paul P. Momtaz (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
Malet Place London WC
London, London
United Kingdom

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