Two years on from the introduction of Mifid II, large and mega-cap companies’ IR budgets in Europe have been curtailed, while resources allocated for IR activities at small and mid-cap firms in the region have seen an increase, research shows.
Mega-cap companies have experienced the greatest fall in IR spending in the last five years, with a notable drop over two years, according to an overview of the IR Magazine Global Investor Relations Practice Report between 2015 and 2019.
Issuers based in Europe with market caps of $30 bn or more curbed their IR spending by 45.8 percent in the last two years, preceded by a 27 percent cost-cut in 2017 compared with 2016.
IR Magazine research conducted during the last five years investigates IR practices across a range of areas such as team size, budget, IR outreach and senior management involvement in IR.
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Source: IR Magazine Global Investor Relations Practice Report, 2015-2019
IR budgets at large-cap issuers in the region also drifted by 3 percent in 2019 compared with 2017. No data is available for 2018.
Mifid II has mixed influence
Europe’s flagship market legislation has also led to a knock-on effect on the IR budgets at small and mid-cap companies.
Small-cap firms in Europe saw their IR budget skyrocket in the last two years, reaching a high of $207,000 in 2019 compared with $138,000 in 2017, according to the report. Mid-cap firms also saw a 17 percent increase in their IR spending over the last two years, up from $341,000 in 2017.
Speaking to IR Magazine last year, French market regulator the AMF said: ‘Mifid II has made coverage a major issue, as a fall in research budgets has seen a reduction in coverage of small and mid-cap stocks.
‘Some market participants express concern about Mifid II’s impact on the liquidity of small and mid-caps and the potential, in turn, to hit smaller company IPOs in what could be reduced investor appetite over the longer term.’
Given reports that sell-side analysts are more likely to focus their energy on large and mega-cap companies because they are more profitable, that could explain why the change in budgets at these firms is so different from changes experienced by small and mid-cap companies.
Mifid II bites in North America
The European legislation’s impact could also be reaching North America.
IR budgets at all cap sizes in the region have fallen since the Mifid II rollout – although it is less clear whether Mifid II is the cause. Large-cap issuers’ IR budgets were hit most among all cap sizes: their spending was slashed by 29 percent, plunging to $469,000 last year, a new record low.
Small caps in North America have seen a decrease of 7 percent, mid-caps 8 percent and mega-caps just 2 percent cuts from their IR budgets since 2017.
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Source: IR Magazine Global Investor Relations Practice Report, 2015-2019
Small-cap budgets rose significantly between 2015 and 2017, but dropped off in 2019. This is in contrast to the budgets at small-cap companies in Europe.
Mifid II challenges small caps in Asia
As the European regulatory regime has made its way East, IR budget allocation at small caps and mega-caps in Asia started mirroring the European pattern, IR Magazine reported last year.
| Asian IR budget ($) | 2019 | 2017 | 2016 | 2015 |
| Overall | 300,000 | 203,000 | 227,000 | 277,000 |
| Small cap | 92,000 | 57,000 | 159,000 | 152,000 |
| Mid-cap | 187,000 | 188,000 | 142,000 | 203,000 |
| Large cap | 355,000 | 176,000 | 133,000 | 293,000 |
| Mega-cap | 528,000 | 689,000 | 853,000 | 850,000 |
Source: IR Magazine Global Investor Relations Practice Report, 2015-2019
‘Smaller listed corporates have lost analyst coverage or are now frozen out of corporate access as larger brokerages typically require a certain threshold of service to the corporates – for example, minimum market capitalization and minimum daily trading volume and value,’ Jonathan Kuah, a director at the Investor Relations Professionals Association Singapore (IRPAS), told IR Magazine in November 2019.
While mega-cap IR budgets in the region have been slashed by 23 percent since 2017, small caps saw a 61 percent increase in IR spending year on year. Asian mid-cap IR budgets remained steady in 2019 compared with 2017, while large-cap issuers’ IR budgets have more than doubled since 2017.
Speaking to IR Magazine last year, Venus Zhao, IR Magazine Award-winning head of IR, corporate finance and PR at Hong Kong-based Far East Consortium International, urged small-cap IR professionals to be more proactive in communicating directly with investors as the sell side reduces coverage of small and medium-sized companies.
