The CEO Beauty Premium: Founder CEO Attractiveness and Firm Valuation in Initial Coin Offerings

Abstract

Research summary: We apply insights from research in social psychology and labor economics to the domain of entrepreneurial finance and investigate how founder chief executive officers' (founder CEOs') facial attractiveness influences firm valuation. Leveraging the novel context of initial coin offerings (ICOs), we document a pronounced founder CEO beauty premium, with a positive relationship between founder CEO attractiveness and firm valuation. We find only very limited evidence of stereotype-based evaluations, through the association of founder CEO attractiveness with latent traits such as competence, intelligence, likeability, or trustworthiness. Rather, attractiveness seems to bear economic value per se, especially in a context in which investors base their decisions on a limited information set. Indeed, attractiveness has a sustainable effect on post-ICO performance. Managerial summary: ICOs allow ventures to collect funding from investors using blockchain technology. We leverage this novel funding context, in which information (i.e., amount raised) and post-funding performance (i.e., buy-and-hold returns). We find that ventures with more attractive founder CEOs outperform ventures with less attractive CEOs in both dimensions. For ICO investors, this suggests that ICOs of firms with more attractive founder CEOs are more appealing investment targets. Our findings are also interesting for startups seeking external finance in uncertain contexts, such as ICOs. If startups can appoint attractive leaders, they may have better access to growth capital. (Brooks et al., 2014; Davila & Guasch, 2020) show that more attractive entrepreneurs are more likely to obtain external finance from investors than their less attractive peers, the theoretical mechanisms underlying this positive association have not been thoroughly investigated. Our study takes an important step forward in this direction by documenting that investors value firms led by more attractive founder CEOs higher when the information set on which they base their investment decisions is limited, and in doing so, they obtain higher returns.