Do markets value manager-investor interaction quality? Evidence from IPO returns

Abstract

This paper investigates the impact of manager-investor interaction quality on stock returns by utilizing an online IPO roadshow dataset and leveraging a word-embedding model. We find that such interactions are positively valued, as reflected in initial returns. The effect is particularly pronounced for firms characterized by higher levels of information asymmetry, greater investor attention, increased question uncertainty, or discussions on topics not covered in prospectus. Additionally, our research reveals that effective management communication leads to increased first-day turnover rates and thus higher returns. These heightened returns persist up to 180 days following the IPO, without displaying a significant long-term reversal associated with interaction quality. These findings underscore the meaningful impact of the quality of manager-investor interactions on firm valuation.

Appendices

Appendix A. Variable definitions

Variable	Definition
Dependent variables
IniRet	IPO initial returns, calculated as (first-day closing price – offer price) / offer price
BHAR	Post-IPO buy-and-hold abnormal returns, using the A-share market index over that same period as the benchmark
Independent variables
Interaction quality	The extent to which managers respond effectively to investors in an online roadshow, defined as the average semantic relevance score of manager’s answer and investor’s question
Interaction quality⊥	The residual interaction quality measure, which is obtained by regressing Interaction Quality on manager characteristics (Mangers Age, Managers Gender, Mangers Education) and a constant, and taking the residuals
Manager characteristics
Mangers age	The average of mangers’ age
Managers gender	The percentage of female managers
Mangers education	The average of educational level of managers, which is categorized as follows: Junior College and Below is assigned a value of 1, Bachelor’s Degree is assigned a value of 2, Master’s Degree (including MBA) is assigned a value of 3, and Doctoral Degree is assigned a value of 4
Control variables
Words	Natural log of the number of words spoken in the online roadshow
Tone	The difference between the proportions of positive and negative words in the online roadshow. The list of positive and negative words is based on CFSD (Bian et al. 2021b)
Firm age	Natural log of one plus firm age which is the difference between founding year and IPO announcement date
Firm size	Natural log of total assets for the year previous to going public
Lev	The total debts / total assets ratio in the year prior to IPO
ROE	Return on equity for the year previous to going public
Board size	The number of board members
Independent director	The percentage of independent directors on the board
Political connections	The number of board members who have served or is currently serving as a member of the National People’s Congress of the China (NPC) or the Chinese People's Political Consultative Conference
SOE	Dummy variable equal to one if the IPO firm is state owned
Offer PE	IPO price / Earnings
Offer issues	Natural log of the number of issuing shares
Lottery ratio	The number of shares issued / the number of shares subscribed
Underwriter prestige	Dummy variable equal to one if the underwriter of the IPO firm is ranked among the top-10 underwriters by the Securities Association of China (SAC), and zero otherwise
Prior 3 month IPO volume	Sum of gross IPOs in the prior three months
Prior 3 months underpricing	Average percent of underpricing of IPOs in the prior three months
Prior 3 weeks market returns	Percent returns on the Shenzhen stock market three weeks (15 trading days) prior to the IPO
Other variables of interest
IPO uncertainty	Dummy variable equal to one if the standard deviation of daily returns of IPO firm 30 trading days after official listing is greater than the sample median, and zero otherwise
Baidu search	Dummy variable equal to one if the average of IPO firm’s daily Baidu search index between offering date and listing date is greater than the sample median, and zero otherwise
Questions-prospectus similarity	Dummy variable equal to one if the cosine similarity between investor questions and the prospectus is greater than the sample median, and zero otherwise
Questions uncertainty	Dummy variable equal to one if questions uncertainty is greater than the sample median, and zero otherwise. Questions uncertainty is measured by the proportions of uncertainty words in the questions during the online roadshow

Appendix B. A sample of uncommon but intriguing questions

All the 10 question-answer pairs are from real online roadshows

No	Content	Firm ID
Q&A-1	问: “公司未来投资者关系管理的主要方式是什么?我们这些中小散户能否有机会参加?” 答(董事长): “‘你好, 公司未来投资者关系管理可以通过接受投资者电话、信函、实地考察以及业绩推介会、媒体沟通会、投资者见面会、分析师年会、一对一路演、一对多路演等多种方式进行。所有的股东都可以参加公司组织的相关活动。谢谢。” Question: “What is the company’s main way of managing investor relations in the future? Can we retail investors have the opportunity to participate?” Answer (Chairman): “‘Hello, the company’s future investor relations management can be achieved by receiving investor calls, letters, on-site visits, earnings results briefings, media communication meetings, investor meetings, analyst annual meetings, and one-to-one roadshows, one-to-many roadshows, and other methods. All shareholders can participate in related activities organized by the company. Thank you.”	300,006
Q&A-2	问: “请问公司高管, 你们如何判断公司未来的二级市场走势?如果购买公司的股票能赚钱吗?” 答(董秘): “您好!二级市场股票走势受很多因素的影响, 除了整个市场的行情以外, 还有行业、心理预期等等不确定性。如果单从基本面的角度来讲, 我相信公司的股票二级市场走势将是令投资者满意的。谢谢!” Question: “Corporate executives: how do you judge the future trend of the company’s stock in the secondary market? Can we make money if we buy the company’s stock?” Answer (Secretary of the Board of Directors): “Hello! The trend of the stock price is affected by many factors. In addition to the market factor, there are also uncertainties associated with the industry factor and psychological expectations. From a fundamental point of view, I believe that the company’s stock performance will satisfy investors. Thank you!”	300,020
Q&A-3	问: “董事长对自己如何评价?是否听取过员工对您的评价?” 答(董事长兼总经理): “您好: 我对自己的评价是: 积极、自信的面对工作!我很重视跟员工的沟通交流, 听取他们的心声, 了解他们对工作改进的想法。这是我们提高员工工作积极性非常有效的途径。谢谢!” Question: “How do you evaluate yourself? Have you heard what employees say about you?” Answer (Chairman and General Manager): “Hello: My evaluation of myself is: work positively and confidently! I attach great importance to communication with employees. I listen to them, and value their ideas for work improvement. This is a very effective way for us to improve employee enthusiasm. Thank you!”	300,055
Q&A-4	问: “你们公司我去过, 太难找了, 趁早搬家吧。” 答(董事长/总经理): “您好!我们一定按你说的办, 10.1前迁至生命园。谢谢!” Question: “I’ve been to your company. It’s too difficult to find. Please move as soon as possible.” Answer (Chairman/General Manager): “Hello! We will do what you said and move to Life Park before October 1st. Thank you!”	300,070
Q&A-5	问: “金通灵对上市公司不规范运作、欺诈小股东的行为有何感想?” 答(董事会秘书): “上市公司不规范运作、欺诈小股东、恶意圈钱等行为不仅损害了中小股东的利益, 而且对我国股市的长期发展非常不利, 相信随着我国资本市场的市场化、规范化进程的加快, 只有那些法人治理结构完善、规范运作的上市公司才能取信于市场、取信于众多股民。谢谢!” Question: “How does Jin Tongling feel about irregular operations of publicly traded companies and the behavior of defrauding minority shareholders?” Answer (Secretary of the Board of Directors): “Irregular operations, defrauding minority shareholders, malicious money scams, etc. not only harm the interests of minority shareholders, but are also very detrimental to the long-term development of our country’s stock market. I believe that as our capital markets become increasingly market-oriented and with the acceleration of the standardization process, only those listed companies with a sound corporate governance structure and standardized operations can win the trust of the market and shareholders. Thank you!”	300,091
Q&A-6	问: “请问董事长, 你现在最高兴的一件事是什么?最头疼的一件事是什么?最担忧的是什么?” 答(董事长、总经理): “最高兴的一件事是公司这几年快速成长, 经历了经济危机的大考验, 越来越健康和成熟; 最头疼的事是在获得投资者的认可和上市之后, 如何尽快的使这些募集资金发挥效益, 为股东创造利益; 最担忧的是由于问题太多不能满足所有投资者的需求, 可能有些股东不能给予理解!谢谢!” Question: “Chairman, what is the happiest thing for you now? What is your biggest headache? What is the most worrying thing?” Answer (Chairman, General Manager): “One of the happiest things is that the company has grown rapidly in recent years, has gone through the test of the economic crisis, and has become more and more healthy and mature; the biggest headache is after going public, how to best utilize raised capital as soon as possible and create value for shareholders; the most worrying thing is that there are too many problems to meet the needs of all investors, and some shareholders may not understand! Thank you!”	300,098
Q&A-7	问: “听说贵公司外地大学生较多, 你们是怎样安排外地大学生的业余生活的?” 答(总经理): “我公司的外地大学生很多, 除西藏、台湾以外, 各省都有。他们的生活质量对我们的公司非常重要, 我们公司建立了职工活动室, 组建了管弦乐队、足球队、篮球队, 以丰富业余文娱生活, 公司每半个月都要邀请相关专家、教授举行讲座。每年都以车间、科室为单位组织外出旅游。谢谢!” Question: “I heard that your company has many nonlocal college graduates. How do you help them with their life in non-working hours?” Answer (General Manager): “Our company has many college graduates from all the provinces, except Tibet and Taiwan. Their quality of life is very important to our company. To enrich their recreational life, we established a staff room, an orchestra, a football team, and a basketball team. We invite relevant experts and professors to give lectures twice a month. Every year co-workers in each department organize outings. Thank you!”	002001
Q&A-8	问: “听说公司的邱董事长爱好帆船运动, 能讲一下您是如何喜欢上这项运动的吗?这项运动对您搞好公司的事业是否有帮助?” 答(董事长): “帆船运动可以锻炼人的意志,也很讲究团队合作,拼搏向上的精神.通过参与帆船运动,我结识了一群志同道合的朋友,从中获得了很多启发. 对公司事业的发展有很大的帮助.当然,帆船是我的业余爱好,我的主要精力还会放在工作上.谢谢!” Question: “I heard that Chairman Qiu loves sailing, can you tell me what made you like this sport in the first place? Does this sport help you manage your company to some degree?” Answer (Chairman): “Sailing can exercise a person’s will. Its success depends on teamwork and the spirit of hard work. Through participating in sailing, I met a group of like-minded friends and gained a lot of inspiration from it, which helps a lot for the development of the company’s business. Of course, sailing is just my hobby, and my main focus will still be on work. Thank you!”	002055
Q&A-9	问: “请问你们上市后如何主动与媒体、与投资者搞好关系?” 答 (董事会秘书): “上市公司与众多投资者之间的沟通, 很大程度上要依靠财经媒体。在万丰奥威成长过程中, 很多财经媒体就给予了关注和支持, 在此向他们表示感谢!我们希望与众多财经媒体建立经常性的、畅通的、有效的沟通渠道。谢谢!” Question: “How will you take the initiative to establish a good relationship with the media and investors after listing?” Answer (Secretary of the Board of Directors): “The communication between listed companies and investors depends to a large extent on financial media. In the process of Wanfeng Aowei’s growth, the financial media have covered us and supported us. We hope to establish regular, unobstructed, and effective communication channels with financial media. Thank you!”	002085
Q&A-10	问: “个别公司上市融资后业绩出现大幅下滑, 贵公司会出现类似问题吗?” 答(保荐代表人): “在市场环境不发生大的变化的情况下, 不会出现类似问题。” Question: “Some companies have experienced a sharp decline in their performance after they went public. Will your company have similar problems?” Answer (representative from the underwriter): “Without major changes in the market environment, similar problems will not arise.”	002099