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Mar 25, 2020

IR papers: Do investors look at job postings?

A roundup of academic research from the world of IR studies

Ensure you make the right impression with your human capital

Human capital, arguably a modern firm’s most valuable asset, gets scant attention in financial disclosures. US companies are required to report little more than the number of people they employ each year.

But a recent academic study suggests that investors are bypassing stingy investor relations channels and using high-tech tools designed to reap data from online job postings – a disclosure overseen by corporate HR departments. ‘[Job postings] are not regulated by the SEC and likely erode IR’s control over the timing and the amount of information revealed to outsiders,’ write the study’s authors.

With data scraped from the websites of more than 14,000 public and private companies, analysis uncovers three key findings:

  • More (and better) job postings predict better corporate performance
  • The market knows this
  • Its reaction to job postings has become much more pronounced in recent years, consistent with growing data availability.

‘More and more hedge funds are buying this data so we figured there had to be something to it,’ says study co-author Ben Lourie, assistant professor of accounting at University of California, Irvine. ‘It turns out to be an important disclosure –  and one, it should be said, that few retail investors [can access].’

With several organizations around the world – including regulators such as the SEC – examining greater human capital disclosure, Lourie hopes his findings will influence the debate. Meanwhile, at minimum, he says investor relations professionals should keep tabs on job postings to ensure they are accurate and updated.

‘Investors are definitely looking at that information,’ he observes. ‘And you certainly don’t want to give them the wrong impression.’

Investors take corporate governance ratings seriously – but only downgrades

While debate over the role of proxy advisory firms has focused on the impact of their recommendations, a new study reveals advisers’ influence on capital markets is much greater than previously assumed. Reviewing more than 3,000 governance ratings change announcements by ISS, researchers find a large downgrade can knock 1.14 percent off a company’s stock price. Upgrades, on the other hand, provoke hardly any market reaction.

‘We can’t say whether [ISS’ governance quality opinion] is right or wrong,’ says study co-author Marco Nerino, lecturer in corporate governance at King’s College London. ‘But markets definitely respond to it.’

‘The magnitude [of market reaction] surprised us,’ adds Paul Guest, study co-author and professor of corporate finance at King’s College London. ‘That’s a lot of dollars. It certainly hits CEO option values.’

The study’s findings further suggest that investors are indeed more focused on governance downside risks, with reaction to downgrades linked to cash flow, market-to-book value and leverage.

World of research

  • CEOs lie less when analysts pretend to know more than they do or ask assertive questions during earnings conference calls. A US study also finds that the less knowledge an analyst has before the call, the more likely he or she is to be assertive.
  • Combing through more than 80,000 call transcripts, investigators find analysts who use humor get to speak longer and get more detailed responses from managers. For their part, funny managers were met with higher abnormal stock returns surrounding the call and more positive analyst stock recommendation revisions.
  • German companies organizing a capital markets day see an average cumulative abnormal return of more than 1 percent in a 31-day event window. Study findings show benefits are particularly pronounced for firms with low analyst coverage and more intangible assets and those facing a challenging financial situation that have previously hosted such events.

This article originally appeared in the Spring issue of IR Magazine.