Investor conferences yield greater stock liquidity
Companies that participate in investor conferences experience a 1.4 percent to 2.8 percent increase in stock liquidity in the same quarter, compared with similar companies that don’t participate, according to new research.
The benefits of attending conferences are further enhanced if the company has had less visibility than its peers in the quarter before the conference, say three academics in their research paper ‘Investor conferences, stock liquidity and firm performance’.
They caution, however, that there is a threshold where conference participation has a negative effect on company performance. While the appearance of CEOs and CFOs at investor conferences can boost liquidity in the short term, it also means the company management is spending less time on running the business.
The report authors conclude that the sweet spot is one or two investor conferences per quarter. Participating in three to five conferences in a quarter will begin to have a detrimental effect on operating performance and – potentially – liquidity in the future.
‘Firms attending a conference improve their liquidity because it helps them with their visibility,’ report co-author Cihan Uzmanoglu, assistant professor at the School of Management, Binghamton University, tells IR Magazine. ‘But there’s a limit to improving visibility – and a cost. The more time a CEO spends with external parties, the less time he/she spends managing the company. With every single conference presentation, the marginal benefit declines and the cost increases.’
Size does matter
The bump in liquidity is further enhanced when more companies present at a conference, because investors and analysts get a more comprehensive overview of an industry, the research finds. Management also benefits from this exposure to conference presentations, report co-author Musa Subasi, assistant professor of accounting at the University of Maryland’s Robert H Smith School of Business, tells IR Magazine.
‘If a CEO has to attend 20 conferences in a year, that takes a lot of his/her time and energy away from running the company,’ Subasi says. ‘But one benefit is that [CEOs doing this] can learn a lot from other companies and from observing industry trends.’
While presentations at conferences can lead to an uptick in liquidity, the same cannot be said of one-to-one investor meetings. The report authors note that one-on-one meetings are important to grant access to management for key investors and prospective investors, but that they don’t lead to an increase in liquidity.
Another variable is the reputation of the conference host, which is partly predicated on whether it produces equity research. No doubt this will be an area for further scrutiny when the effects of Mifid II are fully felt from next year onward.
Which companies participate in conferences?
The report authors examined 56,922 presentations made by 2,888 companies at 4,800 conferences between 2005 and 2010. They find the companies selected to participate in conferences outperform their peer group in the quarter prior to the conference: attendees had an average pre-conference stock return of 5.1 percent, compared with 4.5 percent for non-conference companies.
But the improved liquidity after participating in a conference is short lived, lasting only for the quarter in which the conference takes place. ‘While conference firms are attractive based on their pre-conference performance, they don’t continue to outperform the non-conference firms following the conference presentation,’ the report authors write. ‘Therefore, conferences do not have superior stock selection ability, consistent with market efficiency.’