Investor Relations and the Flow of Information through Investor Networks
University of California at Los Angeles - Anderson School of Management
University of Chicago - Booth School of Business
University of Michigan, Stephen M. Ross School of Business
April 10, 2015
This study develops a model to examine how companies' investor relations can impact the dissemination of information and how the dissemination of information affects the time-series behavior of bid-ask spreads. In our model, investors become aware of the information release either directly from investor relations or via person-to person communication. The person-to-person communication then spreads in a network of heterogeneous individuals, where some serve as 'hubs' with high connectivity to others. We show that the optimal investor relations strategy relies on targeting highly connected investors, especially for time-sensitive and complex information. We also show that targeted disclosure can reduce bid-ask spreads over long horizons, indicating a benefit in terms of lower trading costs. We also show that investor relations activities to expand the investor base facilitate the optimal information release by increasing the number of hub-type investors who follow the company and therefore receive the initial information release.
Number of Pages in PDF File: 42
Keywords: disclosure, networks, investor relations, bid-ask spreads
JEL Classification: D85, G12, G14, M41
Date posted: May 25, 2011 ; Last revised: April 14, 2015
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