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Investor Relations and the Flow of Information through Investor Networks

42 Pages Posted: 25 May 2011 Last revised: 14 Apr 2015

Judson Caskey

University of California, Los Angeles (UCLA) - Accounting Area

Michael Minnis

University of Chicago - Booth School of Business

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Date Written: April 10, 2015

Abstract

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.

Keywords: disclosure, networks, investor relations, bid-ask spreads

JEL Classification: D85, G12, G14, M41

Suggested Citation

Caskey, Judson and Minnis, Michael and Nagar, Venky, Investor Relations and the Flow of Information through Investor Networks (April 10, 2015). Available at SSRN: https://ssrn.com/abstract=1848323 or http://dx.doi.org/10.2139/ssrn.1848323

Judson Caskey (Contact Author)

University of California, Los Angeles (UCLA) - Accounting Area ( email )

D410 Anderson Complex
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://sites.google.com/site/judsoncaskey/

Michael Minnis

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

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