Share Price & Investor Relations: A Causal Relationship
Research studies have shown that quality investor relations is not just the distribution of financial material and conducting investor meetings. Investor relations includes the quality and credibility of management, its strategic vision and ability to execute initiatives. Further, it encompasses corporate governance, ethics policies, accounting practices, reporting standards and disclosure practices.
However, many companies tend to equate investor relations with PR – public relations. While PR has its place, it is not relevant when investment decisions are made.
If the ultimate long term vision of a company is to enhance shareholder wealth, then every strategic vision and operating initiative must keep that goal in mind. And, for management to create shareholder value, management must understand how shareholders value the company. This information can only be gained through a proactive investor relations program that includes interaction with retail investors, institutional investors, potential investors, brokers, analysts and the media.
The Investor Relations Society, UK defines investor relations as:
“ the means whereby listed companies maintain a dialogue with existing shareholders and potential investors. Its purpose is to present an accurate picture of corporate performance and prospects, thus allowing the investment community, through an informed market, to determine a realistic share price. As a result, investor relations can have a positive impact on a company’s market value and cost of capital relative to its industry sector and the overall economic climate.”
Market Capital considers that:
“Best practice investor relations should drive companies to achieve the highest sustainable value for their shareholders. Optimal equity valuation offers public companies the distinct advantage of encouraging investor loyalty and reducing the cost of capital. It also provides a stronger currency for acquisitions and attractive compensation incentives from takeover corporates.”
All investors should review a Company’s investor relations program as part of the investment decision. This is particularly important with small and mid-cap companies.