Manager’s Body Expansiveness, Investor Perceptions, and Firm Forecast Errors and Valuation
74 Pages Posted: 19 May 2020 Last revised: 28 Apr 2021
Date Written: April 27, 2021
We examine the relation between a measure of managers’ physical display—body expansiveness—and favorable reporting practices (in firm forecasts and valuation information) and performance (survival and funding success). We videotaped 154 entrepreneurs pitching their business idea and use computer vision to obtain 2D skeletal information about the movements of speakers’ physical joints. We show that physical expansiveness correlate with higher forecast errors and proposed firm valuations, lower survival, yet higher likelihood of funding success. We argue that investors do not correctly incorporate the informational value of nonverbal communication, and propose a behavioral argumentation. In the cross section, results dissipate with enhanced governance. We further corroborate the proposed mechanism by studying entrepreneurs’ personal characteristics. Altogether, we shed light on an overlooked information set—nonverbal behavior—and relate it to firm forecasting, valuation, survival and financing success; important factors in the assessment of investment opportunities, deal structure, and ex-post monitoring.
Keywords: Investor Perceptions; Financial Projections; Valuation; Nonverbal Communication; Entrepreneurs; Start-Ups
JEL Classification: G41; G31; G12; M13; M12; M41
Suggested Citation: Suggested Citation