Where do Investor Relations Matter the Most?
65 Pages Posted: 26 Feb 2019 Last revised: 29 May 2019
Date Written: May 27, 2019
We test the hypothesis that the marginal benefit of investor relations (IR) is greater in countries where capital market institutions are generally less developed and tailored to a more concentrated ownership structure. Using a large panel of survey-based annual IR rankings of German and U.K. companies, we find that IR quality in Germany exhibits a positive association with capital market visibility, liquidity, and firm value and a negative one with information asymmetry, uncertainty, and the cost of equity capital – and significantly more so than in the U.K. In a broader European sample, we find that the benefits of IR accrue more significantly to firms located in countries where i) corporate ownership is more concentrated and ii) capital market institutions are weaker. Lastly, we find that the benefits of both public and private functions of IR are amplified in those countries. Overall, the evidence suggests that IR is associated with greater marginal benefits in markets where demand for this type of shareholder communication has been historically lower.
Keywords: Investor Relations, Transparency, Ownership Concentration, Firm Visibility, Information Asymmetry, Cost of Capital
JEL Classification: G14, M41
Suggested Citation: Suggested Citation