I just published another scholarly article focusing on investor relations: How Investor Relations Contributes to the Corporate Bottom Line. The article reviews academic and professional literature on investor relations contributions and claims that there are four major ways in which investor relations’s contribution can be evaluated:
1. Share price
2. Trading volume
3. Analyst coverage
4. Relationships with the financial community
Then, the study subjected these four theoretical contributions to the scrutiny by the investor relations professionals through the so-called Delphi panel methodology (a method initially developed by the U.S. military to evaluate dangers of the potential USSR attack!).
The results indicated that derived-from-the-literature contributions do not always meet the reality test and must be specified.
Share price largely depends on the performance rather than on investor relations efforts, however, investor relations can help that share price be “fair” – in other words, reflecting the actual value of the company rather than “the higher the better.”
High trading volume or lower trading volume can be equally bad for the company – so, it is more important to look at the efficiency of the market in a stock and broadness of the shareholder base.
Similar situation is with the analysts coverage – not just only good or only bad, but rather its accuracy and uniformity.
Finally, building relationship is a measure difficult to quantify, yet fully supported by the professionals. Investor relations officers, however, must look into costs and benefits of various relationships – hedge fund vs pension fund or private shareholder vs institutional investors.
The full article is published in the Journal of Public Relations Research, 2011, Volume 23, Issue 3, pp.302-324, and is available at the journal web site (although it might require subscription in some cases – then, contact me!)