The IR papers: an academic look at the capital markets
Liking the right thing
Plenty of research links institutional investors’ stock preferences with socially responsible companies. A recent study in the Journal of Business Ethics suggests economics rather than morals is the key to that correlation.
‘We wanted to know exactly why institutional investors preferred these firms,’ says paper co-author Henry Petersen, associate professor at the Marshall Goldsmith School of Management in San Diego. ‘What did they perceive or measure that was of value in the companies that practiced CSR?’
To find out, Petersen and his colleague Harrie Vredenburg at the University of Calgary conducted a research project that included interviewing senior officers with IR responsibility at three large Canadian oil and gas companies as well as some of their top investors, alongside a ‘mail-in’ survey of 31 Canadian investment firms.
The result? ‘It certainly wasn’t philanthropy,’ says Petersen. ‘And it wasn’t simply risk mitigation. Strategic elements like generating consumer market opportunities and access to resources and the best employees were important CSR factors for investors.’ Even so, the survey indicated little desire to pay a premium for such features.
A study in the Journal of Banking & Finance casts doubt on the view that foreign institutions boost liquidity in small emerging markets.
After analyzing the Jakarta Stock Exchange from January 2002 to August 2007, researchers found foreign holdings have a negative impact on future liquidity.
The study’s authors suggest several reasons for the findings, including greater information asymmetry induced by foreign institutions and their penchant for buy and hold strategies. This marked phenomenon also appears in developed markets when ownership becomes too concentrated.
Italian graphic art
There’s room for improvement in graphs in Italian annual reports, according to the International Journal of Accounting Auditing and Performance Evaluation. Surveying the 2005 annual reports of 52 Italian blue chips, the first empirical study of Italian graphical reporting practices finds material distortions in about one quarter of key performance indicator graphs.
‘Graphs could be improved,’ says Giuseppe Ianniello, professor of accounting and business administration at the University of Tuscia in Viterbo, Italy. ‘Why so many are bad remains unknown.’
While not against regulation, Ianniello believes some art education would help remedy the situation. ‘It seems many accountants use graphics just for decoration rather than as a communication tool,’ he says. ‘It’s important to pay more attention to graphical design in financial courses.’
Ianniello’s study finds Italian companies use as many graphs as firms elsewhere but prefer stock market representations to financial performance indicators. For example, 37 companies exhibit the stock price while only 17 have a sales graph. Cash flow, EPS and return on capital employed are largely absent in the Italian graphical language. ‘Banks have traditionally financed Italian companies and communication with financial markets is less sophisticated,’ offers Ianniello.