Practice a poker face: Manager emotion and investor sentiment

Abstract

While manager emotion and investor sentiment has been studied extensively, the empirical evidence on the relationship between them is more limited. In this study, we apply a machine learning approach to extract manager emotion from IPO roadshow videos. Our findings indicate that executives' neutral emotion has a positive impact on investor sentiment, and the effect is more pronounced when the ex-ante information asymmetry is higher. These results remain robust after a series of robustness tests. Furthermore, we show that investors tend to disfavor managers' surprise or fear emotion, the influence of neutral emotion weakens over time, managers' neutral emotion improve investor sentiment mainly by increasing positive sentiment relative to decreasing negative sentiment, and individual investors are more likely to be influenced compared to institutional investors. Finally, we show that and managers' neutral emotion is positively associated with IPO underpricing. This study is the first to document a causal relationship between manager emotion and investor sentiment, supporting the “stranger effect” in social psychology.