Bradley E. Hendricks

Perceptions and Price: Evidence from CEO Presentations at IPO Roadshows

This paper examines the relation between cognitive perceptions of management and firm valuation. We develop a composite measure of investor perception using 30-second content-filtered video clips of initial public offering (IPO) roadshow presentations. We show that this measure, designed to capture viewers’ overall perceptions of a CEO, is positively associated with pricing at all stages of the IPO (proposed price, offer price and end of first day of trading). The result is robust to controls for traditional determinants of firm value. We also show that firms with highly perceived management are more likely to be matched to high-quality underwriters. In further exploratory analyses, we find the impact is greater for firms with more uncertain language in their written S-1. Taken together, our results provide evidence that investors’ instinctive perceptions of management are incorporated into their assessments of firm value.

A Pecking Order Response to Regulatory Uncertainty: Evidence from Basel III

This paper examines how firms respond to proposed regulation. Specifically, we utilize the time period that banking authorities used to discuss, adopt, and implement Basel III to examine how quickly firms adjusted their financial reporting and/or business model decisions in response to the proposed regulatory framework. We find evidence that banks altered their business models and made strategic financial reporting changes before regulators even agreed on the final regulatory terms. We also provide evidence that banks were more likely to make these anticipatory changes when they: 1) benefitted more from signaling an early commitment, or 2) had less uncertainty about whether they would be subjected to the regulation. While prior research generally assumes that firms follow a sequential pecking order approach when faced with regulatory uncertainty, our findings suggest that firms’ incentives may lead them to lobby against a proposed regulation while simultaneously making costly operational and financial reporting changes to comply with it.

Through the Eyes of the Founder: CEO Characteristics and Firms' Regulatory Filings

We examine whether textual attributes of firms’ regulatory filings reflect CEO characteristics and whether investors consider this relation when assessing firm value. We build on prior research that shows founders have unique personality attributes, particularly overoptimism. We find that 10-K text for founder-led firms is characterized by “excess” optimism relative to current and future realized earnings and relative to non-founder-led firms. The effect is mitigated for firms with large auditors, high litigation risk and high analyst following. Based on stock price at the 10-K release, investors do not appear to appropriately discount the tone, resulting in predictable negative returns during the year subsequent to the 10-K release, particularly for the first two years after firms go public. To bolster the conclusion that CEOs influence text, we provide broad sample evidence that CEO fixed effects are significantly related to several textual attributes.

Responding to Regulatory Uncertainty: Evidence from Basel III

This paper examines how firms respond to proposed regulation. Specifically, we utilize the time period that banking authorities used to discuss, adopt, and implement Basel III to examine how quickly firms adjusted their financial reporting and/or business model decisions in response to the proposed regulatory framework. We find evidence that banks altered their business models and made strategic financial reporting changes before regulators even agreed on the final regulatory terms. We also provide evidence that banks were more likely to make these anticipatory changes when they: 1) benefitted more from signaling an early commitment, or 2) had less uncertainty about whether they would be subjected to the regulation. While prior research generally assumes that firms follow a sequential pecking order approach when faced with regulatory uncertainty, our findings suggest that firms’ incentives may lead them to lobby against a proposed regulation while simultaneously making costly operational and financial reporting changes to comply with it.

Responding to Regulatory Uncertainty: Evidence from the Proposed Basel III Rules on Mortgage Servicing Rights

This paper examines how firms respond to proposed regulation. Specifically, we utilize the time period that banking authorities used to discuss, adopt, and implement Basel III to examine how quickly firms adjusted their financial reporting and/or business model decisions in response to the proposed regulatory framework. We find evidence that banks altered their business models and made strategic financial reporting changes before regulators even agreed on the final regulatory terms. We also provide evidence that banks were more likely to make these anticipatory changes when they: 1) benefitted more from signaling an early commitment, or 2) had less uncertainty about whether they would be subjected to the regulation. While prior research generally assumes that firms follow a sequential pecking order approach when faced with regulatory uncertainty, our findings suggest that firms’ incentives may lead them to lobby against a proposed regulation while simultaneously making costly operational and financial reporting changes to comply with it.