Excellence in Investor Relations Pays

With input from NYSE’s regulatory department, I wrote “Building Trust with US Investors,” saying that transparency is necessary when it comes to attracting today’s prudent capital and suggested 13 ways to achieve that. There’s a real cost to issuers that do not have a top notch investor relations program.  Here’s why:

In a recent survey of fund managers and analysts conducted for the Australasian Investor Relations Association (AIRA), 89% say good or bad investor relations can affect valuation. The survey found 60% of respondents think ‘excellent’ IR can add more than 5% to a stock and 24% feel top-notch IR could contribute more than 10 percent. On the other hand, 79% of respondents say the maximum discount for bad IR could be 5 percent or more, and 30% say that poor IR practices could see the stock discounted by more than 15%.

Another recent study, this one by investor relations firm TMX Equicom and the Canadian Investor Relations Institute (CIRI), found that investors are willing to pay a premium for companies with better investor relations (IR) practices. In fact, 98% of the surveyed investment community, which included sell-side analysts, investment advisors, buy-side analysts and investment bankers, agree IR has an effect on a company’s valuation. Given two similar companies with differing IR standards, 93% would pay a premium of at least 5% for the company with more credible IR practices, while 69% would pay a premium of at least 10%. On the other hand, 93% would discount share price by at least 5% for a company with less credible IR practices; 67% would discount at least 10%.

It’s clear that excellence in IR pays.