Companies can use communication in form of corporate advertising i.e. in order to attract investment. The investment can be of monetary nature, made available by attracted investors, or it can also be in form of human resources or any other kind of benefit that increases the assets of a company. Furthermore, corporate communications can affect a company’s price on the stock market. According to a study, conducted by the Kellogg School of Business, financial advertising indeed does have a statistically significant positive effect on stock prices.
Investor Relations Definition
According to the National Investor Relations Institute (NIRI), investor relations are defined as “a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a companies securities achieving fair valuation”.
A Framework for Managing Investor Relations
In order for a company to compete effectively for investors’ capital, it needs to focus on some objectives. First of all, the company has to explain its vision, strategy and potential investors and “conduit constituencies” such as analysts and the media. Secondly, it has to ensure that the expectations of a company’s stock price are appropriate for its earnings prospects, the industry outlook, and the economy. Finally the company should try to reduce the volatility of its stock price.
There are two major kinds of investors, institutional investors and individual investors. Institutional investors are primarily funds, insurance companies, and banks. Institutional investors own almost 60 percent of the U.S. equity market. Having identified an institution whose investing criteria match the company’s characteristics, the company should develop a plan to interest this investor in investing for the long term. This way the company can save time and efforts it would have spent on attracting uninterested investors. Individual investors are the individual shareholders. Individual investors may have smaller accounts and a lower trading volume than institutional investors. Additionally they require different information than institutional investors. Yet all individual investors together own over 40 percent of the U.S. equity market. Furthermore it is more difficult to reach individuals than connecting with institutions, because they are more numerous and harder to identify. In recent years, the internet has proved to be a powerful channel for providing institutional as well as individual investors with real-time information about companies.
Often investors learn about companies through sources other than the company itself, those sources usually are analysts, the media, and rating agencies. Especially the media and the analyst community are key conduits.
The Media includes print, television, and online media; media coverage of business can have a dramatic effect on a company’s stock price. In a survey conducted by the Financial Relations Board, every second retail broker admitted that what they read in the media influenced them and their clients in making investment decisions. So, obtaining the right kind of media coverage can be a critical component of an investment relationship strategy.
There are two kinds of analysts, “sell-side” analysts and “buy-side” analysts. Buy-side analysts work for institutional investors whereas sell-side analysts cover stocks within certain industries and generate detailed research reports offering “buy”, “sell”, or “hold” recommendations. This research is then provided to clients of investment banks. That means that sell-side analysts are intermediaries. Buy-side analysts in contrary are not intermediaries because they are employees of a specific institutional investor.
Rating agencies analyze companies in much the same way that analysts do, but with a specific focus on their creditworthiness. The ratings assigned to companies by those agencies, reflect the companies’ ability to meet its debt obligations. These ratings can be obtained from published reports and are available for the public. Rating agencies are similar to analysts when it comes to their relationship with a company, with the major difference that the agencies will focus on the company’s debt structure. Thus, rating agencies are an important intermediary constituency for a company’s investment relationship efforts.
Developing an Investor Relations Program
The investor relation function can be both, in-house or by external professionals, or a combination of both. According to NIRI the average size of an investor relation department is between one and two people. Usually those individuals have access to senior management, including the CEO and the CFO. The investor relationship department can be used to add value to the company’s stock. Especially when the company meets a crisis, the investor relation department can provide analysts with information, and information as is generally known reduces risk.
Investor Relations and the Changing Environment
As mentioned before, the internet is a very powerful communication channel. It provides nearly real-time information to a wide audience, and this transparency is especially valued in the current business environment; especially after the bankruptcies of 2001, the information on the web site provided by the investor relationship department, hemps uncertainty and mistrust on part of the investors.
Investor Relations Definition
According to the National Investor Relations Institute (NIRI), investor relations are defined as “a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a companies securities achieving fair valuation”.
A Framework for Managing Investor Relations
In order for a company to compete effectively for investors’ capital, it needs to focus on some objectives. First of all, the company has to explain its vision, strategy and potential investors and “conduit constituencies” such as analysts and the media. Secondly, it has to ensure that the expectations of a company’s stock price are appropriate for its earnings prospects, the industry outlook, and the economy. Finally the company should try to reduce the volatility of its stock price.
There are two major kinds of investors, institutional investors and individual investors. Institutional investors are primarily funds, insurance companies, and banks. Institutional investors own almost 60 percent of the U.S. equity market. Having identified an institution whose investing criteria match the company’s characteristics, the company should develop a plan to interest this investor in investing for the long term. This way the company can save time and efforts it would have spent on attracting uninterested investors. Individual investors are the individual shareholders. Individual investors may have smaller accounts and a lower trading volume than institutional investors. Additionally they require different information than institutional investors. Yet all individual investors together own over 40 percent of the U.S. equity market. Furthermore it is more difficult to reach individuals than connecting with institutions, because they are more numerous and harder to identify. In recent years, the internet has proved to be a powerful channel for providing institutional as well as individual investors with real-time information about companies.
Often investors learn about companies through sources other than the company itself, those sources usually are analysts, the media, and rating agencies. Especially the media and the analyst community are key conduits.
The Media includes print, television, and online media; media coverage of business can have a dramatic effect on a company’s stock price. In a survey conducted by the Financial Relations Board, every second retail broker admitted that what they read in the media influenced them and their clients in making investment decisions. So, obtaining the right kind of media coverage can be a critical component of an investment relationship strategy.
There are two kinds of analysts, “sell-side” analysts and “buy-side” analysts. Buy-side analysts work for institutional investors whereas sell-side analysts cover stocks within certain industries and generate detailed research reports offering “buy”, “sell”, or “hold” recommendations. This research is then provided to clients of investment banks. That means that sell-side analysts are intermediaries. Buy-side analysts in contrary are not intermediaries because they are employees of a specific institutional investor.
Rating agencies analyze companies in much the same way that analysts do, but with a specific focus on their creditworthiness. The ratings assigned to companies by those agencies, reflect the companies’ ability to meet its debt obligations. These ratings can be obtained from published reports and are available for the public. Rating agencies are similar to analysts when it comes to their relationship with a company, with the major difference that the agencies will focus on the company’s debt structure. Thus, rating agencies are an important intermediary constituency for a company’s investment relationship efforts.
Developing an Investor Relations Program
The investor relation function can be both, in-house or by external professionals, or a combination of both. According to NIRI the average size of an investor relation department is between one and two people. Usually those individuals have access to senior management, including the CEO and the CFO. The investor relationship department can be used to add value to the company’s stock. Especially when the company meets a crisis, the investor relation department can provide analysts with information, and information as is generally known reduces risk.
Investor Relations and the Changing Environment
As mentioned before, the internet is a very powerful communication channel. It provides nearly real-time information to a wide audience, and this transparency is especially valued in the current business environment; especially after the bankruptcies of 2001, the information on the web site provided by the investor relationship department, hemps uncertainty and mistrust on part of the investors.
Examples:
The Heinz Company for example is organizing events, where Heinz’s professionals from the Investor Relations Department give presentations about the company and display the benefits of investing in Heinz. The schedule of these events can be found online.
UPMC i.e. designed its annual report as a brochure including besides the financial data, information about the company’s vision, mission, social and environmental responsibility, the quality and innovation. All those characteristics are supported with convincing numbers, which can be looked up in the financial section of the report.
Experiences:
When I was working for a real estate company, I joined the IR professional for a few days to his journey, visiting potential investors. What I realized was that no matter if institutional or private investor and no matter how much money they have to invest, the just do not give it away. It was hard to convince them to at least continue considering the company’s real estate portfolio as a potential investment. Of course if the returns are reasonable you will find people to invest I your company, but you can be sure of one thing, they do not just look on the returns, but on everything about your company. It is definitely not an easy job to be an IR professional.
References:
Argenti, Paul A. (2007). Corporate Communication (4th ed.). New York, NY: McGraw Hill, pp. 157-175.
Links:
http://heinz.com/Investor.aspx
http://www.bnymellon.com/investorrelations/index.html
http://www.upmc.com/AboutUPMC/AUHome/FinancialInformation/AnnualReport.htm
http://resources.bnet.com/topic/investor+relations+officer.html
http://www.investor.bayer.com/en/reports/10-wppg/
http://www.niri.org/
http://www.federalreserve.gov/
http://www.sec.gov/
http://www.nasdaq.net/
http://www.ccbn.com/
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