Manager’s Body Expansiveness, Investor Perceptions, and Firm Forecast Errors and Valuation

74 Pages Posted: 19 May 2020 Last revised: 28 Apr 2021

See all articles by Tony Davila

Tony Davila

University of Navarra - IESE Business School

Martí Guasch

ESADE Business School

Date Written: April 27, 2021

Abstract

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

Davila, Antonio and Guasch, Martí, Manager’s Body Expansiveness, Investor Perceptions, and Firm Forecast Errors and Valuation (April 27, 2021). Available at SSRN: https://ssrn.com/abstract=3593478 or http://dx.doi.org/10.2139/ssrn.3593478

Antonio Davila

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Martí Guasch (Contact Author)

ESADE Business School ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

HOME PAGE: http://https://sites.google.com/view/marti-guasch

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