The Role of Emotions in Entrepreneurial Finance
Digital Rising Career Seminar
During the seminar, that will be held from 5 pm to 6.30 pm, two papers will be presented: the first one by one of the researchers of the School of Management of Politecnico di Milano, the second one by a guest researcher, invited for a discussion on the topic. At the end of the presentation, there will be an open discussion with the participants.
Walking in the Dark: When does Entrepreneurs’ Passion Matter for the Investors’ Decision-Making?
Silvia Stroe, Assistant Professor at the School of Management, Politecnico di Milano
How do professional investors decide to invest in new ventures and technologies whose future success is surrounded by uncertainty? In the early entrepreneurship context, where reliable indicators of the quality and the future prospects of new ventures are missing, investors turn to subtle and noisy informational cues related to the mode of communication entrepreneurs use to convey their business ideas to investors, such as the body language, displayed emotion, or physical appearance. This research focuses on such an informational cue: the affective passion displayed by entrepreneurs in their interactions with investors. The results of our experimental, multi-study analysis show that the affective passion displayed by an entrepreneur during a pitch will be considered by investors as valuable information about the success chances of a new venture, but that this will occur only in absence of other, more objective information with higher predictive and confidence value, such as existing sales of the new venture.
CEO Emotions and Firm Valuation in Initial Coin Offerings: An Artificial Emotional Intelligence Approach
Paul Momtaz, Senior Researcher at the Anderson School of Management, University of California, Los Angeles
How emotions impact firm valuation is empirically understudied because affective traits are difficult to quantify. 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 (signalling mechanism). Both mechanisms are stronger in the presence of asymmetric information.
Paul Momtaz is a Senior Researcher at the Anderson School of Management at the University of California, Los Angeles. His research interests are in corporate and entrepreneurial finance, entrepreneurship and innovation, and strategy. He publishes in journals such as Journal of Business Venturing; Strategic Management Journal; Journal of Corporate Finance. Before entering academia, Paul worked in management consulting and banking, and was the head of the global resolution planning office at Commerzbank AG. His academic work has been recognized with the Sorbonne-Prize of the University of Paris, Cambridge University scholarships, a full scholarship of the German National Merit Foundation, and recently with a best paper award by the Financial Management Association.
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