Managing the Narrative: Investor Relations Officers and Corporate Disclosure

Academic whitepapers regarding investor relations tend to disappoint me. The lionshare I have read (or snoozed through) are invariably based on share price and volume juxtaposed against some activity calculated with a painful equation built on old data i.e. “earning share price from 2002 to 2008 and the impact of XYZ.” More frustrating to me is that the results are, well, academic. Rarely IRO actionable.

This new study is different. It’s tangible, with a focus on the process of IR programs, not benefits or consequences of IR programs.

Published on March 20, 2017, Managing the Narrative: Investor Relations Officers and Corporate Disclosure from Lawrence D. Brown – Temple University, Department of Accounting; Andrew C. Call – Arizona State University (ASU), School of Accountancy; Michael B. Clement – University of Texas at Austin, Department of Accounting and Nathan Y. Sharp – Texas A&M University, Department of Accounting, is superb reading.

The report covers many topics expressly for IR, acknowledging NIRI’s work and using it as a launch pad for deeper analysis, particularly around the critical importance of the earnings conference call – “the most important venue for management to convey their company’s message to institutional investors, and that preparing for and managing these calls are the most important determinants of IRO job performance.”

FROM THE STUDY:

Second, our study provides new insights into the influence IROs have on corporate disclosures. Prior accounting research implicitly or explicitly assumes the CEO and CFO have primary influence on corporate disclosure decisions, whereas the role 5 IROs play in shaping corporate disclosures has been largely ignored.

Our findings indicate that IROs have considerable influence over corporate disclosure, and that their performance is evaluated in large part based on their ability to manage these disclosures.

Third, while prior research documents the value of various services sell-side analysts provide to institutional investors, our study provides new insights about the value of sell-side analysts to management of the firms they follow.

Finally, our study provides insights from company management on topics, such as earnings conference calls, that have generally been studied from the perspective of analysts or institutional investors. By documenting the relative importance of various activities that take place before (i.e., developing a script, preparing a list of possible questions and answers), during (i.e., managing the queue), and after (i.e., private “call-backs”) public earnings conference calls, our study provides a rich understanding of the dynamics involved in this important disclosure event.

The authors are very transparent on how they reached their analysis, with details on how they selected the IROs and firms, how the interview process and the Q&A used, including:

  • How much influence do you believe the typical CFO and IRO have on the substance and form of the following disclosures?
  • How important are your interactions with the following individuals for the purpose of doing your job effectively?
  • How important are the following in determining your superior’s assessment of your job performance?
  • If the following individuals request private access to senior management, how likely would you be to grant the request?
  • How likely would you be to have contact with the following individuals because a sell-side analyst revised his/her recommendation for your company’s stock?
  • How likely would you be to contact sell-side analysts in the following situations?
  • How likely are would you be to contact institutional investors in the following situations?
  • With respect to Regulation Fair Disclosure (Reg FD), how often do you believe the following situations arise for the typical IRO?
  • Does your company select participants from the queue on your public earnings conference calls on a first-come, first-served basis?
  • Does your company typically conduct private “call-backs” with the investment community after your public earnings conference calls?
  • What is your best estimate of the number of individuals from each group below who enter the queue to ask a question during the Q&A portion of your company’s typical public earnings conference call?
  • After they enter the queue, how likely would the following individuals be to be selected to ask their question during the Q&A portion of your company’s public earnings conference calls?
  • How likely would you be to initiate a private “call-back” with the following individuals shortly after a public earnings conference call?

The whitepaper is available, free, at the SSRN website – CLICK HERE.



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