IR Papers: The internal order factor

May 31, 2012
<p>A roundup of academic research from the world of IR studies</p>

In the average Latin American country, about half the largest companies are cross-listed in the US. But in Colombia just eight of the biggest 100 firms have American depositary receipts (ADRs). Why? Researchers at Universidad de los Andes in Bogota say the local kidnapping business (and the armed conflict business and the illegal drug business) have all put a crimp on the ADR listing business.   

‘If you did not want to be a kidnapping target, you did not want people to know the size of your salary or how many companies you owned,’ explains Alexander Guzman, associate researcher at the Universidad de los Andes. This encouraged companies to adopt opaque strategies and Byzantine ownership structures.

Guzman says that’s all changing, however, and points to the kidnapping index as proof. ‘In the year 2000 we had more than 3,000 kidnappings,’ he says. ‘Today, the yearly rate is less than 300.’

He believes the time is right for an ADR surge. ‘With a more secure environment, Colombian firms could be more motivated to disclose information and seek out investors abroad,’ he adds.

Summer books

1. The latest edition of Investing in shares for dummies is now available. Alas, the ‘dummy’ segment of your investor base is quite unlikely to know much about you. On page 237 of the book, under ‘Technical stuff’, is this gem: ‘The part of a company that looks after all the regulatory stuff is called investor relations (IR). The financial governance of a company is tightly controlled by the IR department. Well-run companies never issue any figures that have not first been agreed with their IR director....’

2. Now your friends can get a glimpse of what you do. A new Penguin novel, The Darlings by Cristina Alger, has this vaguely incoherent reference to IR, where Carter Darling, a fund manager boss, is enlisting the help of the intrepid Paul: ‘Everyone wants to redeem out… Investor relations has turned into a triage center.’ Paul nodded soberly. ‘How many people do you have in the IR department?’ ‘A couple top guys. But it doesn’t really matter... I’ve had relationships with a lot of these folks for years… They don’t want their hand held by some pretty IR girl wearing a nice suit.’

Top kidnap hotspots

1. Afghanistan – Average 950 kidnappings a year
2. Somalia – Pirates
3. Pakistan – Only 10 percent-20 percent of abductions are for ransom
4. Venezuela – Per-capita kidnapping leader
5. Yemen – 200+ foreigners snatched in 20 years
6. Mexico – Either 2,000 or 17,889 kidnappings in 2011, depending on source
7. Colombia – Officially, 258 in 2011

Source: red24

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