A Letter from the NIRI President
Last month, the President of NIRI’s letter to all NIRI (National Institute of Investor Relations) members highlighted a study conducted by professors at Wharton and Harvard on the ability of outside IR firms to impact valuation and institutional ownership for small and mid-sized companies.
Here’s the comment from the NIRI President regarding the report:
“This past week while at the NIRI-University of Michigan IR certificate program, Professor Greg Miller shared with me a study regarding small companies initiating IR programs with the help of an outside IR firm. The findings indicated undervaluation significantly decreased, institutional investment from “preferred” institutions increased, and analyst and media coverage also increased.”
Below is a summary of the 54-page report that was initially published in Aug 2007. Seems the NIRI should have known about this research sooner… Better late than never.
Many small firms face significant challenges in improving visibility and attracting investors to their stock. One response to these challenges is to initiate an investor relations (IR) program. Through interviews and surveys with IR professionals, we learn that the IR process focuses on management access and company visibility as key drivers of the strategy’s success, with attracting institutional investors as a common goal. Our empirical tests examine a sample of 210 small- and mid-cap companies that increased IR activities (proxied by the hiring of an outside IR firm). Our results show that the companies exhibit increases in disclosure, media coverage, and analyst following. They also exhibit substantial and ongoing increases in institutional investor ownership. As part of this increase, our sample firms experience a shift in investor composition toward institutions that are more geographically distant and that tend to invest in larger companies, consistent with the IR activities creating visibility to a different type of investor. Finally, there are improvements in valuation in the year following the IR initiation, as proxied by the book-to-price ratio and stock returns. Overall, our results indicate that IR activities focused on increasing firm visibility are successful in impacting market participants’ interactions with the companies.