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May 01, 2013

IR Papers: It’s an IR world

A roundup of academic research from the world of IR studies

World o’ research

Got bad earnings news to deliver Friday morning? Then hope your community sports team wins the big game on Thursday night. Researchers at the University of South Florida find investors under-react to earnings news when it’s inconsistent with the announcing firm’s local investors’ sports mood. The study also highlights the effect of local investor sentiment on market performance.

2. SOX has encouraged institutional investor support for innovative companies. Researchers led by Nida Abdioglu, associate professor of finance at Balikesir University in Turkey, find a positive post-SOX relationship between institutional ownership (mainly passive and long term) and innovation. The results, say investigators, are driven by improvements in disclosure and accountability in the US market.

3. US investors have had a say on pay for more than two years – so do they know what they’re talking about? Surveying all firms in the Russell 3000 that voted after say on pay became mandatory, researchers based in Washington State find significant shareholder sophistication in discerning relevant issues linked to compensation. In particular, their results suggest firms with poor financial performance, lower market returns, high abnormal compensation and higher abnormal accruals are more likely to fail say-on-pay votes.

4. Tunisian annual reports don’t even come close to supplying analysts with useful voluntary disclosure, notes a study in the International Journal of Accounting and Financial Reporting.

5. A study of large French firms finds managerial ownership, board and audit committee independence, frequency of board meetings and quality of external audit are positively associated with voluntary disclosure. On the other hand, more audit committee meetings mean less disclosure. Overall, according to a paper published in the Journal of Applied Business Research, larger, profitable and less indebted French firms have more voluntary disclosure.

Investor Relations on the Rim

1. A survey of manufacturing firms in Indonesia, Malaysia, Singapore and Australia during the 2007-2009 financial crisis shows communication of risk data positively relates to company size and board independence. Leverage, on the other hand, shows a negative relation. Indonesia, the least developed country with arguably the highest business risk factors, consistently offered the least risk disclosure.

2. Increases in a company’s non-financial disclosure – such as product-related or business expansion information – result in a higher likelihood of a credit rating agency upgrade, according to a report published by Singapore’s Nanyang Technological University.

3. The announcement of contract awards by Korean construction companies is more likely to be favorably evaluated by the market during economic upturns, notes research published in the Journal of Management in Engineering. With the recession shrinking the domestic construction market, contractors are turning abroad: more than half of this year’s $70 bn revenue is expected from overseas projects.

4. A survey of 120 Japanese IPO prospectuses from 2003 finds those that disclose more intellectual capital information enjoyed much better long-term stock price performance and reduced cost of capital. Three-year abnormal returns for high-disclosure companies topped 99 percent, significantly more than the 29 percent registered by low-disclosure firms.

5. Stock volatility is bad for your investors’ cerebrovascular health: Chinese researchers say each 100-point movement in the Shanghai Stock Exchange Index corresponds with a 3.22 percent increase in local stroke deaths. No data yet on what subset of those are IROs.

6. Good corporate governance pays off in Peru, according to a South American research team. Induction into the country’s good corporate governance index yields a company’s stock a 1 percent abnormal return on the day the induction is announced.