Quiz: how well do you know IR?
1. Neither ticker symbol below conveys information about a firm. So why is a) preferable?
2. Cross-listing in the US produces various capital market benefits. But these are often temporary, with corporate valuations falling in subsequent years. Why?
3. Firms in which country get the greatest bang for their IR investment buck?
a) The UK
4. Research shows that for every five-day delay past an expected earnings report date, firms can expect a roughly 23 basis-point lower abnormal return over a two-day announcement window. What explains investors’ negative reaction?
a) Worries that earnings announced with a delay are more susceptible to manipulation
b) Investors view delayed announcements and the management as less credible
c) Concerns about higher market and/or idiosyncratic risk
5. When will an earnings announcement most likely cause less stock price volatility?
a) Before markets open
b) After markets close
6. Your firm has missed earnings expectations. Which explanation will most likely help assuage investor concerns?
a) ‘We had $77 mn of after-tax cost resulting from the termination of two supply arrangements’
b) ‘Our high single‐digit top-line growth, coupled with continued margin expansion, will deliver sustainable double‐digit ongoing EPS’
1. A recent analysis shows that US stocks with ‘clever’ tickers (actual English words) are more liquid and trade at tighter spreads. They are also traded more by uninformed investors and get bigger market reactions on earnings announcement days.
2. The quality of a firm’s investor communication is key to maintaining the long-term benefits of cross-listing, notes a recent study. ‘Foreign companies that don’t live up to the high expectations of US investors and analysts post-listing won’t ‘bond’ with US market institutions or maintain visibility in US capital markets,’ says Nayana Reiter, assistant professor of accounting at the University of Toronto.
3. b) Analyzing a panel of annual IR rankings of German and UK firms, researchers say IR is extra-potent for firms in countries where capital markets are generally less well developed and tailored to a more concentrated ownership structure. ‘If a German firm moves from being ranked fifth in terms of its IR quality to the number two spot, it will enjoy more capital market benefits than a UK firm that
does the same thing,’ explains study co-author Francois Brochet, associate professor of accounting at Boston University.
4. b) Perceived disclosure credibility, says a report by a Chinese/US research team.
5. b) Examining more than 80,000 US company earnings announcements, investigators find those released before the opening bell have higher abnormal volatility in the days following compared with firms that announce after market close.
6. a) A US research team finds that when a company is seen as having a riskier profile (as with a negative earnings surprise, for example), using concrete language – past-focused words, verbs and specific numbers – helps induce a more positive investor response.
Score (one point for each correct answer)
1-2 = Bronze: You know more about IR than almost everyone on the planet.
3-5 = Silver: You know more than those dummies in the bronze group.
6 = Gold: You know too much about IR.