Investor Relations and Firm Investment Efficiency

Abstract

ABSTRACT: We examine how the collection and dissemination of market intelligence by investor relations personnel (IRP) affects investment efficiency. We provide evidence that an increased flow of communication from investors to the board of directors, through IRP, is associated with more efficient investment decisions. Proprietary IR survey data illustrate IRP activities. We show that efficient investment decisions are positively associated with (1) the fraction of IRP time spent with existing and new institutional investors, (2) the number of one-on-one meetings between investors and IRP, and (3) IRP-board communication. Predictable associations between the type of IRP-board communication and investment efficiency corroborate our main result. In supplemental tests, we also find that a positive association between efficient investment and (1) IRP compensation and (2) IRP resources. Collectively, our evidence suggests that IRP play an important role as a conduit of market intelligence between investors and directors.