The Role of Investor Relations and Good Corporate Governance on Firm Performance in the Case of the Companies Listed on the Bucharest Stock Exchange

The objective of this paper is to investigate the role of Investor Relations (IR) in the performance of companies listed on the Bucharest Stock Exchange. The study is motivated by the findings in the literature that investor relations may boost information disclosure, analyst following, institutional investor share, liquidity, and business valuation. The current article contributes to the relevant literature by making use of the recently released unique database of VEKTOR scores on company investor relations for 2019 and 2020. The main finding based on regression methodology shows that IR scores have a strong positive relationship with firm performance. Specifically, a one standard deviation rise in the IR score corresponds to a 2.6% rise in company ROA. Companies may be advised to strengthen their investor relations based on these findings about the beneficial role of investor relations.

The effect of financial analysts on the economic implications of disclosed lease information – a note

PurposeThe purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and stock prices.Design/methodology/approachThe difference in lease expense between capital/finance lease and operating lease reporting is estimated based on the approach in Hsieh and Su (2015). This difference is referred to as the earnings impact from operating lease capitalization and is only available from footnotes. The authors then include the level of financial analyst following in a cash flow model to study its impact on the cash flow predictive value of the earnings impact. Similarly, the level of financial analyst following is inserted in an earnings-return model to assess the effect of analyst coverage on the association between contemporaneous stock returns and earnings impact.FindingsThe authors find that the cash flow predictive value of the earnings impact shifts to the interaction between analyst coverage and the earnings impact, suggesting that the decision-usefulness of the earnings impact is conditioned on the level of analyst following. Nevertheless, the authors find that the earnings impact continues to have explanatory value for the contemporaneous stock returns, while the interaction between analyst coverage and the earnings impact does not. This finding suggests that the earnings impact is already fully reflected in stock prices regardless of analyst following.Research limitations/implicationsSince the estimation of the earnings impact from reporting operating leases as capital leases is based on the method developed by Imhoff et al. (1991), the results and inferences are thus constrained by the validity of the method.Practical implicationsThe authors find that financial analyst activities accelerate the incorporation of the earnings impact from operating lease capitalization in cash flow predictions, but it does not promote the impounding of the earnings impact into stock prices. This finding suggests that financial analysts' influence on the dissemination of the earnings impact hinges on the type of economic activity, and failing to consider the financial analyst following in studying the cash flow predictive value of the earnings impact would obscure the findings.Originality/valueThe authors extend the findings of prior research that financial analysts' activities promote the incorporation of firm-specific information into stock prices by investigating the impact of financial analysts on the dissemination of disclosed operating lease information.

Market incidence of carbon information disclosure in the oil and gas industry: the mediating role of financial analysts and governance

Purpose This study aims to assess the informativeness of carbon emission data for the stock markets and the mediating role played by financial analysts and the quality of the governance on this issue. Design/methodology/approach Relying on structural equation modelling, the authors assess the relation between embedded CO2 disclosure or CO2 emissions disclosure and the stock market valuation (Tobin Q), considering the mediating roles played by financial analysts (external monitoring) and corporate governance (internal monitoring). Findings Results based on a sample of North American firms in the oil and gas industry are the following. The disclosure of embedded CO2 is negatively associated with a firm’s market value, but this association is mediated by analyst following and corporate governance. The disclosure of yearly CO2 emissions is also negatively related to stock market value, while corporate governance mediates this negative impact, and analysts following does not. Considering that yearly CO2 emissions represent short-term environmental risks, whereas embedded CO2 represents long-term environmental risks, it appears important to consider embedded CO2 when studying the impact of carbon disclosure on firm value. The authors also show that a firm’s environmental performance (measured by Carbon Disclosure Project – CDP) is positively associated with two mediating variables (i.e. analyst following and corporate governance). Originality/value The study results suggest that CO2 emissions information is less relevant than embedded CO2 in attracting financial analysts when they are assessing a firm’s value because it represents short-term environmental risks, whereas embedded CO2 represents long-term environmental risks. Therefore, the authors consider important to include embedded CO2 when studying the impact of environmental disclosure on a firm’s value.

The Informational Value of Segment Data Disaggregated by Underlying Industry: Evidence from the Textual Features of Business Descriptions

I examine a fundamental determinant of disclosure quality: how underlying data are disaggregated. For this, I create a measure of industry disaggregation, which is the extent to which segment disclosures are disaggregated based on underlying industries. To identify underlying industries, I apply a deep learning algorithm that extracts textual features from Item 1 business descriptions, in which firms are required to accurately describe their products and services. Industry disaggregation captures the disclosure of underlying industries and the adherence to industry-based disaggregation criteria. Consistent with capital markets being informationally segmented by industry, I find that industry disaggregation is negatively associated with analyst forecast error and dispersion, and positively associated with analyst following and information transfers among analysts and investors. These findings indicate that financial information is more informative, and thus of higher quality, when disaggregated by standardized criteria that achieve comparability and match the information-processing strategies of capital market participants.

Analyst Following and Forecast Accuracy After Eliminating the 20-F Reconciliation Between IFRS and U.S. GAAP

In 2007, the U.S. Securities and Exchange Commission (SEC) decided to allow foreign private issuers to file financial statements prepared according to International Financial Reporting Standards (IFRS) without reconciliation to U.S. Generally Accepted Accounting Principles (GAAP). Using a sample of foreign private issuers from 35 countries/regions during the period of 2005 to 2008, this article investigates how the elimination of the 20-F reconciliation affects financial analysts. We find that it significantly reduces analyst coverage but has no impact on forecast accuracy. We show that analysts who are greatly affected are more likely to terminate their coverage of IFRS firms after the SEC’s rule than other analysts. In addition, we hypothesize and find that eliminating the 20-F reconciliation has a greater impact on firms whose 20-F reconciliation is more useful to analysts. For these firms, the elimination of the 20-F reconciliation significantly reduces both analyst coverage and forecast accuracy. Overall, our results suggest that the elimination of the 20-F reconciliation imposes costs on financial analysts.