The Informational Role of Investor Relations: Evidence from the Debt Market

Abstract

We explore the role of investor relations (IR) in debt markets. Using earnings announcements as a laboratory, we examine whether, when, and to what extent IR departments help credit investors assimilate information. We find that the presence of IR decreases (increases) the negative (positive) impact on CDS spreads stemming from bad (good) earnings news, suggesting that IR efforts improve information precision and reduce transparency risk. Cross-sectional analyses suggest that IR matters more when uncertainty is high and creditors are concerned about the credit-risk implications of firm performance. We also find that IR firms receive higher credit ratings and fewer covenants when issuing bonds, and CDS markets react less negatively when IR firms' bond ratings are downgraded below investment grade. Because firms choose their IR activities, we show that our inferences are robust to multiple methods of addressing endogeneity. Overall, we find that IR departments are influential in debt markets.

The value of communication: Evidence from in‐depth investor relations management data

“…IR management can help companies adapt better to changes in the regulatory environment and mitigate the negative effects of crises, especially in an uncertain economic environment (Chapman et al, 2019; Kirk & Vincent, 2014). Moreover, IR can play a similar role in the debt market, as it can help credit investors understand information and reduce investment risk (Kim et al, 2021). However, strategic IR management may not produce permanent gains for the firms.…”

“…According to Brown et al (2019), although private callbacks convey more company information, public earnings conference calls are the most important way managers communicate company information to institutional investors. Meanwhile, IR activities can help investors better absorb and understand the information the company discloses and enhance the reliability of information disclosure through a two‐way dialogue between the company and investors (Chapman et al, 2019; Kim et al, 2021). Higher completeness and reliability of information disclosure represent the higher overall quality of the information environment (Kim et al, 2012), which directly reduces the cost of adverse selection for investors, lowers the cost of capital, and positively affects the firm's market value (Botosan, 1997; Botosan & Plumlee, 2002; Richardson & Welker, 2001).…”

Does corporate ESG disclosure enhance investor relationship management? Evidence from China

“…Consequently, through this study, we seek to make potential contributions in the following ways: (i) Expanding the research on the influencing factors of investor relations management from the perspective of voluntary non‐financial information disclosure. Existing literature focuses more on exploring the economic consequences of investor relations management, but neglects the antecedent factors that enhance investor relations management (Agarwal et al., 2016; Chahine et al., 2020; Chang et al., 2008, 2014; Chapman et al., 2022; Cong et al., 2022; Edmans, 2011; Kim et al., 2021; Laskin, 2014; Nel et al., 2019). This paper delves into the perspective of voluntary non‐financial information disclosure and explores the logic and mechanisms by which ESG disclosure improves investor relations management.…”