Valuation effects of investor relations investments

Abstract

We investigate the stock price performance of 146 firms announcing the appointment of a new investor relations (IR) officer or the hiring of an IR firm between 1999 and 2005. We find positive abnormal returns around the announcement day. In addition, we find evidence that firms with lower valuations, higher idiosyncratic risk, greater chief executive officer holdings, and firms that announce in the post-Sarbanes-Oxley Act era experience greater valuation effects. Finally, we document significant reductions in the information asymmetry and significant increases in the liquidity and visibility of IR firms in the year following the IR announcement.

Economic consequences of implementing and communicating value based management systems

“…To the extent that VBR meets the information needs of market participants, we can expect that a higher level of VBR is associated with lower information asymmetries and cost of capital. This expectation is in line with findings that improvements in investor relations are associated with positive abnormal returns and significant reductions in information asymmetries (Vlittis & Charitou, ). Disclosures on the fundamental value of the firm and its drivers do not necessarily require the firm to have implemented a VBM system; such disclosures can individually be used as means to reduce information asymmetries and as signals of a shareholder orientation.…”

The determinants and market reaction to Open Briefings: an investor relations option and evidence on the effectiveness of disclosure

“…Second, there are market reactions to investor presentations in both the United States (Francis et al ., ; Bushee et al ., ) and Australian resource sector settings (Ferguson and Scott, ) . Vlittis and Charitou () find a positive abnormal return around the announcement of hiring a new investor relations officer or external consultant, consistent with evidence that other public relations activities, such as being recommended on CNBC (Busse and Green, ) or by a financial columnist (Brown et al ., ) is followed by a positive abnormal reaction. Third, any OB signalling effect may be countered by the contention that OBs are paid for disclosure produced by an investor relations firm.…”

“…Following prior literature, we control for measures of the firm's information environment, the extent to which financial information can explain firm value and ownership concentration (Solomon, ; Bushee and Miller, ; Vlittis and Charitou, ). They are defined as follows: DSE i,t = a binary variable equal to 1 for firms whose sales revenues in the most recent annual report on day t are <5 per cent of market capitalization as at t −15 (unless the firm is an investment trust), 0 otherwise; NextEISS i,t = a binary variable equal to 1 if firm i issued equity >5 per cent of issued share capital during the period t + 1 to t + 50, 0 otherwise; AnlCov i,t = a binary variable equal to 1 if there are earnings estimates for the period including day t for firm i on I/B/E/S , 0 otherwise; Top20 i,t = the percentage of shares held by the largest 20 shareholders reported in the most recent annual report on day t ; Resource i,t = a binary variable equal to 1 if firm i is in the resource sector on day t , 0 otherwise; Size i,t = the natural logarithm of the market capitalization of firm i as at t −15.…”

“…As OBs draw more attention than a standard market announcement per se , and are run by an investor relations consultant, our results contribute to both the voluntary disclosure literature and a growing stream of research focused on investor relations‐related disclosure. It is important to study investor relations activities, as doing so can provide insight into how smaller, lesser known firms can attract market attention (Bushee and Miller, ; Vlittis and Charitou, ; Chang et al ., ). OBs are an interesting addition to the literature on investor relations options as they are market announcements not requiring existing high levels of market attention to be used.…”

Strategic stakeholder management: investor relations in South Africa

“…Dolphin (2003) emphasises the utility of IR for strategic marketing, while Hoffman and Fieseler (2011) interpret the IR function primarily as mediator of news through which a company clarifies its effects on shareholder value when they publish news, making effort to explain how new information made available to the market ties into the overall development of the business. A growing body of empirical research suggests evidence of the beneficial outcomes to shareholder value creation associated with IR (Da Silva Rodrigues and Galdi, 2017; Froidevaux, 2004; Gajewski and Li, 2015; Kirk and Vincent, 2014; Nel et al , 2019; Orens et al , 2010; Vlittis and Charitou, 2012).…”