CHAPTER 1 INTRODUCTION
1.2 Purpose of the Study…
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regulations to serve as the bridge between stakeholders inside and outside a corporation. The tasks of IR become more complex than before.
Different from IR’s long history in mature markets, having IR included in corporate structure is still a comparatively new phenomenon that appeared in the late 1990s in Taiwan. This is closely related to government’s foreign investment opening policy. As more qualified foreign institutional investors (QFII) entered Taiwanese stock market in the 1990s, their requirements for transparent and in-time information release prompted the establishment of the profession in many publicly traded companies. The concept of corporate governance urged by Taiwan Stock Exchange (TWSE) and the institutional investors in recent years also intensifies the need to have a coordinator responsible for communicating with the investment community and satisfying the disclosure requirements. The profession has grown much more mature compared with how it was twenty years ago in Taiwan. It is now one of the key characters that brings foreign capital to invest in Taiwan as well.
1.2 Purpose of the Study
There are regular conferences and surveys held by securities companies, financial institutions and IR organizations such as NIRI and IR Magazine for IR officers (IROs) to enhance IR efficiency. This has been practiced in industry for years, while academia pays little attention to the profession.
There is no college or program offering courses related to IR or financial communication in Taiwan or the United States (Laskin, 2014). It is also one of the least studied topics by researchers.
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Communication scholars considered IR to be one type of public relations and believed that IR can function well only when tying together and co-working closely with the public relations. Nevertheless, there is little research on IR from communication school. Given that financial knowledge, a very different field that is usually neglected in communication related works, plays an important part in IR practice, it is not surprising that IR is not among the mainstream topics in communication studies.
On the other hand, researchers from college of commerce do not pay much attention to the profession either. Most of studies focused on the effect of IR, how IR influences a company’s stock price and financial performance from business administration and accounting’s points of view (e.g. Brenna & Tamarowski, 2005;
Bushee & Miller, 2012), and neglected the important communication and relationship management elements of the profession.
Although the financial market has become much more active than before in Taiwan and corporations have gradually become aware of the important of maintaining relationships with investment communities, the roles and functions of IR are still vague and the concept of building up relationships with shareholders is undervalued in some corporations. This limits IR practitioners’ performance and hinders both corporations and their stakeholders’ benefits.
Indeed, there are some scaled corporations having well-established IR programs in their corporate structure and securities companies also help companies improve their communication with investors in Taiwan, the situation in the local academic fields has lagged behind for long. There are not many studies on the topic of IR from either college of communication or business school. A few theses from college of commerce (e.g. 陳淑珠, 2006; 黃品方, 2010; 劉倩妏, 2004; 曾羨雯, 2010; 林子
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均, 2014) discussed about IR; nevertheless, the majority of them took general investors or other professional managers as their research targets instead of looking into IR itself. Only Lin (林子均, 2014) and Huang (黃嘉怡, 2012) included IR practitioners to participate in their research.
To narrow the gap between the development in industry and academia research of IR, the current study aims to obtain a preliminary understanding on the present practice of IR in industry in Taiwan. By in-depth interviews with experienced IROs, this study hopes to draw a basic picture of IR’s functions and its position inside Taiwanese corporations and clarify its roles and importance from communication and relationship management’s point of view, which are important but usually neglected IR features.
In addition, IR’ power relations in corporate structure is also discussed in this study. Corporate information is what the investment community cares about most, and it is one of the most important tools for IR practitioners. If IR practitioners are excluded from the senior management level, they cannot obtain useful and accurate information and will have difficulty building up relationships with their audiences.
As a bridge between investment communities and the corporation, IR also serves the role that brings information on the street back to the corporation.
Nevertheless, if there is no direct communication channel to the top management, IR cannot deliver opinions from outside effectively and provide useful information.
These may harm a corporation’s reputation on the stock market, affecting investors’
expectation and reflect on its stock price.
With more research on the topic of IR, the industry and academia can have more understanding of the profession, utilizing IR function and further improve the
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relationship between corporations, stakeholders, and IR practitioners and pursue a win-win situation.
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CHAPTER 2 LITERATURE REVIEW
2.1 Investor Relations Overview
2.1.1 History and definition of investor relations
IR is a relatively young profession appearing in the early 1950s, the period of economic boom after World War II, when corporations became aware of the fact that people had cash in their hands to be invested. Companies had to make an effort to compete with each other for capital. General Electric (GE) created the profession “Investor Relations” in 1953 and made it function as handling communication with all shareholders. While, the tasks of IR were mostly given to press agents to promote companies’ names to the public through mass media. IR practitioners at that time played the role as an advertiser or one-way information provider/ stock sales only (Laskin, 2010).
In 1970s, the structure of stock market changed and was dominated by professional investors. The traditional method of advertising to the general public did not seem effective to this particular audience group. Investment professionals wanted more detailed information of a company from different dimensions in addition to financial performance. They turned to chief financial officers (CFO) for help instead of IR practitioners who were not able to answer their questions. With this request change, corporations adjusted their expectations of IR practitioners, and this prompted them to turn their focus from advertising to information disclosure and to fulfill the needs of the investment community. Communicating with investors was not a peripheral component of the CFO’s responsibility anymore. It became a professionalized work for IROs and thereby urged the birth
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of modern IR practice. This interpersonal nature of communication also transformed the original one-way communication practice of IR into a two-way information stream (Laskin, 2014; Marcus, 2005).
IR turned into a more established functional profession for many firms gradually in 1980s (Rosenbaum, 1994; Useem, 1993). With the continuous progress of the financial market, corporate governance, securities laws and different demands from the investment community, IR was also changing to keep up with the trend to respond to the needs.
Today, IR has become a profession very different from what it used to be at the beginning. IR was described as “a marketing activity” that aims at providing
“an accurate portrayal of a company” and makes “a positive effect on a company’s value” by the National Investor Relations Institute (NIRI) in 1996. While in 2003, NIRI changed their definition for IR as “a strategic management responsibility”
involving two-way communication on information of both financial and non-financial dimensions to achieve fair valuation of a company’s securities1 (NIRI Board of Directors, 1996, 2003). This change of definitions overviewed the different roles and goals of the profession in corporations in different times.
Tuominen (1997) and Dolphine (2004) described IR as a planned and continuous activity that is to build up relationships with the financial community, including current and potential investors and stakeholders through long-term interaction with them.
1 The full definition of IR by NIRI in 2003: “A strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which
ultimately contributes to a company’s securities achieving fair valuation.”
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The concept of maintaining good relationships with the investment community can be examined through several specific goals for IR. Bragg (2010) sorted out five goals for IR—alter perception of the company, increase analyst coverage, increase geography coverage, reduce stock price volatility, and manage existing investors. These are all for the ultimate reason why having IR profession:
“to maximize a company’s market value” (p.2).
2.1.2 Investor relations research
Although scholars believed that IR should be under the communication field, the financial end of public relations, it is in fact one of the least studied topics in the communication academy (Laskin, 2009).
This might be related to how IR is usually executed and positioned in practice. In industry, most corporations consider IR more related to finance or accounting instead of communication or public relations. Peterson and Martin (1996) attempted to evaluate IR as public relations function in 1996, and the result showed that the majority of IR practitioners were taken as financial function in corporations instead of public relations function. Laskin (2014) replicated the study to see if the profession has changed over the past 15 years but the results were very similar. IR institutes or publications such as NIRI and IR Magazine hold annual survey of IR practice across the world every year, and the results are basically similar over the years.
These studies investigated the situation of IR’s practice in industry by survey.
In addition to quantitative studies, there are also some research took qualitative approach. Dolphin studied (Dolphine, 2004) on IR’s organizational role and
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concluded IR “as part of a co-ordinated marketing communication strategy” (p.25).
Hockerts and Moir (2004) analyzed the roles of IR when talking about the topic of corporate social responsibility (CSR). These studies conducted in-depth interviews with IR practitioners, which provided detailed opinions from their practical experiences.
In addition to IR’s role study and survey on the current trends of IR practitioners, there were also studies focusing on some other topics such as Laskin’s research on how IROs evaluate and measure their performance.
Hoffmann and Fieseler (2011) attempted to identify how non-financial factors influence the formation of a company’s image.
Nevertheless, in terms of the amount, academic research on IR is still limited.
The situation is similar in Taiwan. Not only academic research on the profession is little, even IR itself is a young profession in Taiwan industry.
IR appeared in Taiwan in the late 1990s thanks to government’s gradual deregulation of investments from qualified foreign institutional investors (QFII).
After a series of revising the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, Taiwan welcomed more funds from foreign investors. Taiwan Stock Exchange became unprecedentedly active. Since then, publicly traded companies started to see the importance of competing for capital from around the globe. They saw the need of having someone who can speak English to communicate with foreign investors.
As IR gradually transformed and had more interaction with international institutional investors and invest banks, the profession developed rapidly and kept
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up with the global trends. More publicly traded companies became aware of the importance of IR and included the profession in their corporate structure.
While, most people outside the professional investment community still have no idea what IR is even if the profession has been introduced to Taiwan industry for about twenty years. There was also very little research on the profession in Taiwan. A few master’s theses from commercial college studied this topic by examining the relation between IR performance and corporations’ QFII proportion in shareholder structure, the stock price, and other financial status (陳 淑珠, 2006; 黃品方, 2010; 劉倩妏, 2004; 曾羨雯, 2010). These studies had general investors or institutional investors as their subjects rather than IR practitioners. Huang (黃和傑, 2006) studied how investor relations influenced the performance of the corporation. He compared the data three years before and after the establishment of IR departments in 33 Taiwanese publicly traded companies and found that there were significant differences on QFII holdings percentage and the number of analyst reports. Lin’s thesis (林子均, 2014) had a similar topic but with a different research method. He investigated the establishment of IR department by survey and discussed its correlation with the company’s performance in the stock market.
Few researchers included IR practitioners in their studies. The study of Huang (黃嘉怡, 2012) was aimed to examine whether IR is related to a company’s performance on the stock market. With a survey of 48 IR practitioners (out of 273 in the sampling frame), it was concluded that the results showed IR management is correlated with QFII holdings and the Three Primary Professional Investment Institutions (三大法人持股). Although the findings suggest the importance of IR,
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the results may not be widely generalized with the smaller sample size and the overall research mostly focused on the effects of IR instead of the profession itself.
Another study by Hung (洪智慧, 2004) was the only one that discussed the topic of IR from communication’s point of view. She explored how corporations used public relations strategies to manage the relationships with the investment community. The study focused on the use of public relations strategies and took PR practitioners from automotive crash part manufacturing companies as the target group and conducted in-depth interviews. Hung stated that creating appealing topics to communicate with mass media and institutional investors is important.
She also mentioned about the use of other communication channels such as press conferences, analysts meetings and corporate websites are all useful tools to manage the relationships with investors. Although communication scholars believed that IR is within public relations’ field, the work of IR is usually separated from public relations in practice. It might be more specific if the study can focus on IR practitioners and their own strategies.
Since the topic of IR is neglected in communication and the public relations field for long in Taiwan, this paper attempts to discuss the roles of IR in Taiwan through in-depth interviews with experienced IROs and explore the current situation of the profession from the standpoint of communication.
2.2 Communication and Investor Relations
Bragg (2010) stated that “the work of the IR officer (IRO) centers on communicating the company’s current and potential market value to investors” (p.1) at the very beginning of his book, which pointed out the importance of
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communication for IR professionals. Although it requires knowledge of different fields to execute different IR tasks, communication is the thing that takes the most important position in IR’s work.
Scholars agreed that IR should be the communication function about financial themes instead of the financial function related to communication (Laskin, 2004;
Regester, 1990). In Hoffmann, Tutic and Wies’ study (Hoffmann et al., 2011) on how educational diversity affects IR teams’ performance, the result supported their argument that “the presence of marketing and communication experts in IR teams contributes to higher IR quality and lower shareholder activism” (p.311). Nevertheless, in practice, the situation is usually the opposite. IR has been taken as a finance-related work most of the time and drifted away from public relations even if it is within the public relations paradigm (Laskin, 2014; Peterson & Martin, 1996).
Neglecting communication function of IR may harm the quality of information delivery or even causes stakeholders to have wrong impressions toward the corporation. There is a need to look into the communication dimension of the profession and understand its value and importance.
2.2.1 Communicating with external stakeholders
In many corporations, IR serves the role as the spokesperson or acting spokesperson. They are responsible for drawing up information to deliver to external stakeholders. IROs are considered as management representatives as well.
Their words represent the official opinions from the corporation. As a result, IR has to ensure the accuracy and properness of information he/she gives.
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Financial report is an important information to investors. Financial statements provide information about the financial position, performance and changes of a company and are very helpful for investors to analyze the company and make investment decisions (International Accounting Standard Board [IASB], 2010). Financial information disclosure is also one of the main reasons for many companies to set up the position of IR. IR practitioners disclose financial statements regularly through different publications and their company’s websites to satisfy the needs of the investment community and the requirement of securities laws.
Asides from financial information, abundance of research indicated that non-financial factors significantly affect a company’s market performance. A survey conducted by Ernst and Young Center for Business Innovation (1997) showed that financial numbers are lagging information while non-financial information is more useful when predicting a company’s future development.
Baruch Lev (2001) also supported the statement, saying that financial statement cannot precisely capture the true market value of a company. Thus, capital market participants actually take non-financial factors as important references when analyzing a company (Gabbioneta, Ravasi & Mazzola, 2007). Non-financial information usually plays an influential role in a company’s earnings and stock performance (Farragher et al., 1994).
In Hoffman and Fieseler’s research (2012), they concluded eight categories of non-financial information that equity analysts take into consideration when forming an impression on a company, including its stakeholder relations, corporate governance, corporate social responsibility, reputation, brand, management quality, and strategic consistency.
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It relies on IR to integrate all the untrimmed financial and non-financial information to an easy-to-understand story and deliver it to stakeholders and build up a positive corporate image, which is the “total impression” of the company (Dichter, 1985).
The external audiences for IR are diverse. At the very beginning, IR was designed to attract the general public to buy the company’s stock; while nowadays, the professional financial community is the group that IR interacts with most often, and this task is even considered as part of corporate strategy (Dolphine, 2004).
Different from retail shareholders, professionals from the investment market require more detailed information of the company. They want accurate and the latest information about the company and its position in industry. To respond to their needs, IR must have an adequate understanding of the current situation of the industry as well as the company’s venders, costumers, and peer companies.
Analysts from the sell-side and portfolio managers (or the funds’ own analysts) from the buy-side2 usually visit IROs and keep an eye on the company.
In addition to them, there are also institutional salespersons from the sell-side that contact IR professionals very often. Institutional salespersons often serve as the
In addition to them, there are also institutional salespersons from the sell-side that contact IR professionals very often. Institutional salespersons often serve as the