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Investor Relations, Firm Visibility, and Investor Following

Brian J. Bushee

University of Pennsylvania - The Wharton School

Gregory S. Miller

University of Michigan, Stephen M. Ross School of Business

August 2007

Many small firms face significant challenges in improving visibility and attracting investors to their stock. One response to these challenges is to initiate an investor relations (IR) program. Through interviews and surveys with IR professionals, we learn that the IR process focuses on management access and company visibility as key drivers of the strategy's success, with attracting institutional investors as a common goal. Our empirical tests examine a sample of 210 small- and mid-cap companies that increased IR activities (proxied by the hiring of an outside IR firm). Our results show that the companies exhibit increases in disclosure, media coverage, and analyst following. They also exhibit substantial and ongoing increases in institutional investor ownership. As part of this increase, our sample firms experience a shift in investor composition toward institutions that are more geographically distant and that tend to invest in larger companies, consistent with the IR activities creating visibility to a different type of investor. Finally, there are improvements in valuation in the year following the IR initiation, as proxied by the book-to-price ratio and stock returns. Overall, our results indicate that IR activities focused on increasing firm visibility are successful in impacting market participants' interactions with the companies.

Number of Pages in PDF File: 54

Keywords: Investor Relations, Visibility, Disclosure, Institutional Investors, Analysts, Media

JEL Classification: G12, G29, G23, M41, M45

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Date posted: January 6, 2005  

Suggested Citation

Bushee, Brian J. and Miller, Gregory S., Investor Relations, Firm Visibility, and Investor Following (August 2007). Available at SSRN: http://ssrn.com/abstract=643223 or http://dx.doi.org/10.2139/ssrn.643223

Contact Information

Brian J. Bushee (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-4872 (Phone)
215-573-2054 (Fax)

Gregory S. Miller
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
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