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Sep 16, 2020

Award-winning IR adds premium and lowers volatility, study finds

Ineffective IR leads to discounted valuation, notes new report from IHS Markit

Winners of the IR Magazine Awards have a higher valuation and lower volatility than other companies, according to new research from IHS Markit.

Tonight marks the first ever virtual IR Magazine Awards, as the winners of the US Awards are crowned. While the nominees anxiously wait to find out whether they’ve won, IHS Markit’s latest research reveals that it’s not just a trophy they stand to gain.

Award-winning IR programs trade at an average 15 percent premium valuation, compared with their peers, and experience an average 5.2 percent reduction in beta-implied volatility.

The research looks at the performance of more than 30 companies that won IR Magazine Awards in 2018 and 2019, and compares their performance with more than 100 peers across multiple sectors in the North America, EMEA and Asia-Pacific regions.

The perception analytics team at IHS Markit set out to see whether they could quantify the value of best-in-class IR. In addition to looking at the performance of IR Magazine Award winners, the perception studies team looked at the 10 most and least effective IR teams from a pool of more than 300 companies.

The researchers find that the highest-rated companies trade at an average 8 percent premium and experience less volatility. Conversely, the lowest-ranked companies trade at a significant discount (16 percent) and have an increased volatility of 12 percent.

Michael Miller, director of investor relations advisory at IHS Markit, says his team wanted to take a quantitative and qualitative look at the value of investor relations – and that the latter influenced the former.

‘A lot of IROs said the likelihood of investment is higher with great IR,’ Miller says. ‘As an investor, if you don’t have confidence that you’re getting the right kind of information in a timely manner, you’re going to be less likely to invest.

‘What sets many best-in-class IR professionals apart is the ownership they take – they see themselves as an executive first and an IRO next. Investors know they’re speaking to someone who has a seat at the C-suite table and is a proxy for the CEO or CFO.’ 

Miller adds that this is especially important as companies navigate the continued uncertainty surrounding the Covid-19 pandemic and the US election. In this environment, best-in-class IROs truly act as a two-way conduit between the investment community and management.

‘The ability to communicate internally and feed back particular criticisms takes a certain type of communication approach,’ Miller says. ‘To speak truth to power when the market has a difficult message that the CEO or CFO might not want to hear but may need to hear, sets best-in-class IROs apart.’

The IR Magazine Awards – US 2020 will start tonight at 5.00 pm Eastern Time. Click here for more information.

Ben Ashwell

Ben Ashwell was the editor at IR Magazine and Corporate Secretary , covering investor relations, governance, risk and compliance. Prior to this, he was the founder and editor of Executive Talent , the global quarterly magazine from the Association of...