Professional Investor Relations within the Firm

ABSTRACT: This paper investigates the effect of investments in internal investor relations (IR) departments on firm outcomes. We find that companies initiating internal professional IR experience increases in disclosure, analyst following, institutional investor ownership, liquidity, and market valuation relative to a matched sample of control firms. We also examine the differential impact the exogenous shock of Regulation Fair Disclosure (Reg FD) had on firms with an established professional IR department. We find these IR firms more than doubled their level of public disclosure post-Reg FD. Despite IR firms losing a potential communications channel following Reg FD adoption, we find they did not suffer adversely and instead show a post-Reg FD increase in analyst following, institutional investors, and liquidity relative to a control sample of similar non-IR firms. This implies that the effectiveness of professionalized internal IR increased post-Reg FD consistent with IR firms being relatively better positioned to navigate the more complicated regulatory environment. JEL Classifications: D82; M41; G11; G12; G14; G24 Data Availability: Data are publicly available from the sources identified in the paper with the exception of the membership data from the National Investor Relations Institute, which is a proprietary dataset.

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The Differential Informativeness of Positive and Negative Stock Returns

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x20934235 ◽

2020 ◽

pp. 0148558X2093423

Author(s):

Eli Amir ◽

Shai Levi ◽

Roy Zuckerman

Keyword(s):

Stock Returns ◽

Information Leakage ◽

Negative Information ◽

Accounting Conservatism ◽

Regulation Fair Disclosure ◽

Positive Information ◽

Share Prices ◽

Fair Disclosure ◽

Reg Fd

We show negative stock returns reverse more and contain less information on the long-term changes in share prices than positive stock returns mostly on nondisclosure days, and these information differences between negative and positive returns decrease substantially on disclosure days. The results suggest investors are more likely to acquire positive information on nondisclosure days and to obtain both negative and positive information on disclosure days. Accounting conservatism and litigation exposure compels managers to reveal their negative information in disclosures, and if managers withhold negative information, they do it when investors are less likely to find the information on nondisclosure days. Moreover, we use the exogenous imposition of Regulation Fair Disclosure (Reg. FD) to demonstrate that positive information leakage from firms during the quarter is driving the positive slant in investors’ information. Taken together, our results suggest that disclosure plays an important role in the differential informativeness and reversals of positive and negative returns.

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Changes in analyst following for less covered firms accompanying Regulation Fair Disclosure: the roles of ability and industry experience

Review of Quantitative Finance and Accounting ◽

10.1007/s11156-014-0477-x ◽

2014 ◽

Vol 46 (3) ◽

pp. 519-541 ◽

Cited By ~ 4

Author(s):

Hueiling Chen ◽

Cheng-Tsu Huang ◽

Hsiou-Wei W. Lin

Keyword(s):

Regulation Fair Disclosure ◽

Analyst Following ◽

Fair Disclosure ◽

Industry Experience

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Investor Relations, Firm Visibility, and Investor Following

The Accounting Review ◽

10.2308/accr-10211 ◽

2012 ◽

Vol 87 (3) ◽

pp. 867-897 ◽

Cited By ~ 205

Author(s):

Brian J. Bushee ◽

Gregory S. Miller

Keyword(s):

Media Coverage ◽

Market Value ◽

Data Availability ◽

Direct Access ◽

Investor Relations ◽

Price Ratio ◽

Matched Sample ◽

Common Goal ◽

Analyst Following ◽

Key Driver

ABSTRACT We examine the actions and outcomes of investor relations (IR) programs in smaller, less-visible firms. Through interviews with IR professionals, we learn that IR strategies have a common goal of attracting institutional investors and that direct access to management, rather than increased disclosure, is viewed as the key driver of the strategy's success. We test for the effects of IR programs by examining small-cap companies that hired IR firms in a differences-in-differences research design with controls for changes in disclosure and determinants of the decision to initiate IR. Relative to a matched sample of control firms, we find that companies initiating IR programs exhibit greater increases in institutional investor ownership and a shift toward investors that normally would not follow the companies. We also find greater improvements in analyst following, media coverage, and the book-to-price ratio. Our results indicate that IR activities successfully improve visibility, investor following, and market value. Data Availability: All analyses are based on publicly available data.

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Do Analysts Follow Managers Who Switch Companies? An Analysis of Relationships in the Capital Markets

The Accounting Review ◽

10.2308/accr-50636 ◽

2013 ◽

Vol 89 (2) ◽

pp. 451-482 ◽

Cited By ~ 32

Author(s):

Francois Brochet ◽

Gregory S. Miller ◽

Suraj Srinivasan

Keyword(s):

Capital Markets ◽

Data Availability ◽

Professional Relationships ◽

Matched Sample ◽

Regulation Fair Disclosure ◽

Analyst Coverage ◽

Listed Firms ◽

Fair Disclosure ◽

Carry Over ◽

Selective Disclosure

ABSTRACT We examine the importance of professional relationships developed between analysts and managers by investigating analyst coverage decisions in the context of CEO and CFO moves between publicly listed firms. We find that top executive moves from an origin firm to a destination firm trigger analysts following the origin firm to initiate coverage of the destination firm in 10 percent of our sample, which is significantly higher than in a matched sample. Analyst-manager “co-migration” is significantly stronger when both firms are within the same industry. Analysts who move with managers to the destination firm exhibit more intense and accurate coverage of the origin firm than they do in other firms and compared to other analysts covering the origin firm. The advantage no longer holds after the executive's departure, and most of the analysts' advantage does not carry over to the destination firm. However, the analysts do increase the overall market capitalization of firms in their coverage portfolio. Our results hold after Regulation Fair Disclosure, suggesting that these relationships are not based on selective disclosure. Overall, the evidence shows both the importance and limitations of professional relationships in capital markets. Data Availability: Data are publicly available from sources identified in the article.

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Information Asymmetry and the Bond Coupon Choice

The Accounting Review ◽

10.2308/accr-51852 ◽

2017 ◽

Vol 93 (2) ◽

pp. 37-59 ◽

Cited By ~ 2

Author(s):

Dan Amiram ◽

Alon Kalay ◽

Avner Kalay ◽

N. Bugra Ozel

Keyword(s):

Information Asymmetry ◽

Regulation Fair Disclosure ◽

Signaling Mechanism ◽

Exogenous Shock ◽

Analyst Coverage ◽

Fair Disclosure ◽

Efficient Contract ◽

Prior Literature

ABSTRACT We examine the role of the coupon choice in bond contracts as a signaling mechanism in the presence of information asymmetry between borrowers and lenders about the credit quality of the borrower. Prior literature focuses on the use of maturity as a signaling mechanism. We conjecture that the coupon is a more effective signaling mechanism. We exploit the enactment of Regulation Fair Disclosure (RegFD) as an exogenous shock to the level of information asymmetry, and employ both bond- and equity market-based variables of information asymmetry to test our conjecture. We find that following the enactment of RegFD, the coupon rates of bonds issued by unrated firms increase relatively more than those of rated firms, consistent with the coupon choice addressing information asymmetry. We fail to find similar increases in maturity. Our inferences remain the same when using the probability of informed trade to measure relative changes in information asymmetry around the enactment of RegFD. We also draw similar conclusions utilizing exogenous drops in analyst coverage that result from brokerage house closures as an alternative quasi-natural experiment. Finally, we provide evidence that the coupon is used more extensively when issuance costs are higher, precisely when maturity is predicted to be a less efficient contract term with which to address information asymmetry. JEL Classifications: G10; G23; M21; M41.

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Private Earnings Guidance and Its Implications for Disclosure Regulation

The Accounting Review ◽

10.2308/accr.2007.82.5.1299 ◽

2007 ◽

Vol 82 (5) ◽

pp. 1299-1332 ◽

Cited By ~ 138

Author(s):

Isabel Yanyan Wang

Keyword(s):

Information Environment ◽

Economic Consequences ◽

Information Costs ◽

Earnings Guidance ◽

Regulation Fair Disclosure ◽

Significant Deterioration ◽

Disclosure Regulation ◽

Exogenous Shock ◽

Proprietary Information ◽

Fair Disclosure

This study investigates three related questions: (1) Why did some firms provide private earnings guidance to analysts before Regulation Fair Disclosure? (2) How did the exogenous shock of Regulation Fair Disclosure affect these firms' disclosure policies? (3) What are the economic consequences of this disclosure regulation? To address these questions, I develop a new measure of private earnings guidance. Consistent with theory, I find that firms were more likely to provide private earnings guidance if they had higher proprietary information costs, and if their earnings were more predictive of other firms' earnings. Policymakers enacted Regulation Fair Disclosure to stop private earnings guidance, but they also intended for managers to replace private earnings guidance with public earnings guidance, thereby improving the information environment. However, I find that roughly half of the firms that I classify as relying more on private earnings guidance replace private earnings guidance with non-disclosure instead of public earnings guidance, and as a result, these firms suffer significant deterioration in their information environments. Consistent with theory, firms are more likely to replace private earnings guidance with nondisclosure if they have lower information asymmetry and higher proprietary information costs. On the other hand, firms that replace private earnings guidance with public earnings guidance, on average, prevent significant deterioration in their information environments. Evidence that firms respond to disclosure regulation as predicted by theory can help policymakers anticipate which firms' information environments are likely to be adversely affected by new disclosure regulations.

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Regulation Fair Disclosure, Analyst Following, and Analyst Forecast Dispersion

Accounting Horizons ◽

10.2308/acch.2003.17.1.15 ◽

2003 ◽

Vol 17 (1) ◽

pp. 15-29 ◽

Cited By ~ 108

Author(s):

Afshad J. Irani ◽

Irene Karamanou

Keyword(s):

Negative Impact ◽

Preliminary Evidence ◽

Analyst Forecast ◽

Specific Information ◽

Regulation Fair Disclosure ◽

Forecast Dispersion ◽

Analyst Following ◽

Playing Field ◽

Fair Disclosure

This paper presents preliminary evidence of the effect of Regulation Fair Disclosure (FD) on the quantity and quality of firm-specific information released to the market by comparing analyst forecast data from pre-FD to post-FD time periods. By prohibiting selective disclosure of material information to privileged individuals, the Securities and Exchange Commission intends to provide a level playing field to all investors. However, opponents argue that FD has a negative impact by decreasing the quantity and quality of publicly available information. Consistent with this argument, we document a decrease in analyst following and an increase in forecast dispersion following the passage of FD.

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