Chapter 8: Investor Relations

Categorized (Individual Investors)

-Having smaller accounts -Generate lower trading volume -Seek substantially less detailed information but require more hands-holding with stock split transactions -More difficult to research

What year did IR begin to resemble a sence of discipline?

1950s

When were the first conference calls held for investors?

1980s

NIRI

3,300 members 1,600 publicly held companies $9 trillion in stock market capitalization

Investor Relations (IR) 2003-Today

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 constiuences.

Earnings Webcast

A way for companies to relay information to all interested parties, including institutional and individual investors, as well as buy- and sell-side analysts.

Highest Ratings

AAA - For S&P, Fitch Aaa- For Moody's

Pressure of Corporations because of the Internet

Be Faster Be Cheaper Be Sooner Be Better at everything

Quartely Conference Calls

Became the norm

Analysts

Buy-Side: typically work for money management firms and research companies for their own institution or portfolios. Sell-Side: Cover stocks within certain industries and generate detailed research reports that offer buy sell or hold recommendations.

Media

Can have a dramatic affect on a company's stock price.

Interpublic Group: Financial Relations Board (FRB)

Chicago 1960s - The first public relations firm dedicated to helping its clients develop relationships with investors.

Dot-Com Bubble

Commercialization of the internet in the mid 90s, investors and companies flooding into internet companies, people had confidence that these companies would turn profits, despite their inability to prove to make money or have a viable business plan. NASDAQ peaked at 5,132.

IROs Individual Investors

Communicate By----------------------------------- -Direct mail to affinity groups (e.g. current shareholders, employees, customers, suppliers) -Brokerage community to promote their stocks - Visibility generated through the media and advertising

IROs Instittutional Investors

Communicate By----------------------------------- -phone calls -one-on-one meetings -formal gatherings of large groups

Lowest Ratings

D - S&P C - Moody's

1930s Corporate Secrecy

Didnt allow businesses to hide anymore and forced them to communicate with SEC(U.S. securities and exchange comission) by fling periodic disclosures; two securities acts were passed.

Regulatory Change 1970s

Employment Retirement Income Security Act

Employee Retirement Income Security Act of 1974

Establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax effects of transactions associated with employee benefit plans. (benifits employees and beneficiaries)

Objectives of Investor Relations

Explain the companies vision, strategy, and potential to investors and intermediaries. Ensure expectations of the company's stock price are appropiate for its earnings prospects, the industry outlook, and the economy. Reduce stock price volatility.

Focus on a companies short-term health not long-term health.

False

Security Act of 1933

First major federal legislation to regulate the offer and sale of securities.

Investor Relations Program

Fully in-housed to fully out-sourced

How are Institutional Investors Targeted?

Group Based: High, Moderate and Low Investment Styles: Growth, Value, Income

Junk Bonds

High-risk, high-yield bonds.

Proactively

IR targets investors to whom they can market the company's shares and provides regular informational updates and explanations of performance to the marketplace.

Individual Investors (retail)

Individual investors who buy and sell securities for their own personal accounts, and not for another company or organization.

Sell-Side Analysts

Intermediaries between a company and existing potential investors. Positively affect the trading of stocks Increase trading volume Temper down news affecting the company

What was invented in the 1990s that change the way businesses conduct themselves yet again?

Internet- Now the most important tool for IR.

Clear, full disclosure of business results will put companies in a stronger position in the competition for__________________.

Investor Capital

Out-Sourced IR

Kekst & Company Abernathy MacGregor Financial Relations Board Fleishman-Hillard Burson-Marsteller

Institutional Investors

Large organizations - such as pension funds, mutual funds, and insurance companies - that invest their own funds or the funds of others.

Investor Relations Page (Internet)

Make Stock Quotes & Charts News Releases Webcasts Company's Financial Statements

Rating Agencies: Investor Relations

McGraw-Hill's Standard & Poor's (S&P) Moody's Investor Service Fitch Ratings

Intermediaries

Media Sell-Side Analysts Rating Agencies

1970s FRB

New Way: Pioneered the distribution of investment profiles that laid out a companies long-term financial goals and strategies. Old Way: Information reached potential investors through presentations by company representatives to local stockbrokers clubs or analysts societies.

Investors learn about corporations mostly through sources that come directly from the company.

No

Indirect Communication

Occurs through intermediaries such as analysts, the media and rating agenices; thus comminicating with them can influence stock price, volatility, and in turn, the firms cost of capital and reputation

Regulatory Fair Disclosure (Reg. F.D.) 2000

Prohibits comapanies from disclosing "material nonpublic information" to the investment community that has not already been disclosed to the general public.

Investors Nonfinancial Factors

Quality of Employees Innovation' Credibility of Management Execution of Corporate Strategy

Rating Agencies

Rating agencies charge the issuers of debt securities a fee for assessing default risk. Examine creditworthiness Examine the capabilities of a company meeting its debt obligations. Make information public on information desks and public reports. Hold the key to capital and liquidity

Security Act of 1934

Regulates the sales of securities after the IPO.

National Investor Relations Institute (NIRI)

The professional association of corporate officers and investor relations consultants responsible for communications among corporate management, shareholders, securities analysts and other financial publics.

Investors are interested in a company's business and its value. ( financial and nonfinancial)

True

In-House IR

Typically small: one to two people

Investor Relations assumes a ___________________ role with respect to a company's debt and equity.

marketing

1996 Definition of IR

marketing activity

Information Reduces _______________.

risk

A companies IR strategy should address both individual(retail) and institutional investors.

yes