Investor Relations and Information Assimilation

Abstract

Research has shown the importance of corporate disclosure and dissemination in reducing information asymmetry and improving market efficiency. However, even though investors and analysts might receive corporate disclosures, they often need help with assimilating the information to better understand its implications for firm value. This paper examines whether investor relations (IR) teams provide value by facilitating the assimilation of firm information by the market. We find that firms with IR officers have lower stock price volatility, lower analyst forecast dispersion, higher analyst forecast accuracy, and quicker price discovery, consistent with IR professionals aiding market participants in their assimilation of firm information. We also show that our findings are stronger for firms with longer-tenured IR officers. Finally, we find that when firms transition from a long-tenured IR officer to a new IR officer, stock price volatility increases, analyst forecasts become more disperse and less accurate, and the price discovery process slows. Collectively, these findings suggest that in-house IR teams, particularly those with greater experience, help facilitate information assimilation by the market, which has positive market effects.We would like to thank Michelle Hanlon, John Core, Rodrigo Verdi, Chandra Kanodia and workshop participants at the Massachusetts Institute of Technology and the University of Minnesota for their helpful feedback on the paper.

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