Investor Relations, Firm Visibility, and Investor Following
Brian J. Bushee
University of Pennsylvania - The Wharton School
Gregory S. Miller
The Stephen M. Ross School of Business at the University of Michigan
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, M45working papers series
Date posted: January 6, 2005
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