Investment professionals believe that corporate investor relations activity could account for as much as a 25 percent variance in a company’s stock price, according to a new study by Rivel Research Group. The survey of 243 buy-side investment professionals from some of the nation’s leading mutual funds, pension funds and insurance firms, found that 82 percent believe good investor relations affects a company’s valuation, creating a premium of 10 percent is associated with “superb” investor relations and a median discount of 15 percent is associated with “poor” IR.
“This study serves notice that the environment is ripe for investor communications to exert profound influence over the investment appeal of publicly traded companies among U.S. buy-side analysts and investors,” says Brian Rivel, president. “Rarely has it been so abundantly clear that unique, carefully crafted and targeted messages stand to help analysts and investors differentiate companies amongst a world of conflicting, competing and often highly similar investment opportunities.”
The survey also revealed that articles in general business and trade publications—often a product of effective IR programs—rank second only to in-house research in their value to buy-side professionals seeking to identify equity investment opportunities. An overwhelming majority (83 percent) said companies come to their attention through the media, up eight percentage points from a 2005 Rivel study of this audience.
Respondents also believe investor relations officers are playing an increasingly important role in providing useful intelligence that influences investment decisions. More than two-thirds of respondents (69 percent, compared with 47 percent in the previous survey) identified IR as a key resource to supplement in-house research, SEC filings, quarterly earnings conference calls, meetings with senior corporate executives and other sources of information.
The influence of brokerage house research, meanwhile, is largely seen as waning. More than a third (36 percent) of those surveyed said the impact of sell-side research has declined in recent years: nearly three times the 13 percent who believe it has increased.
Management credibility (77 percent) and effective business strategy (74 percent) remain the leading evaluative factors for buy-side investors, outweighing such considerations as growth in earnings per share (69 percent), reliable cash flow (60 percent) and a strong balance sheet (60 percent).
Says Robert Berick, managing director of Cleveland public relations firm Dix & Eaton, which collaborates with Rivel Research, “These findings confirm our strong belief that companies that treat investor relations as merely a compliance function are short-changing their investors. Clearly, effective communication plays a significant role in shaping decisions about whether to invest in a company, whether to maintain or add to that investment, and whether to refer others to or away from a particular investment.”