Investor Relations

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Investor Relations (abbreviation IR , German investor dialogue or financial communication ) is a field of activity in corporate communication . In the case of a stock corporation or other capital-based companies, it describes maintaining contacts with shareholders or investors, analysts and financial media. These three groups form the so-called financial community (English "financial community"). Since the individual target groups have different prior knowledge, expectations and investment horizons, they should ideally be addressed with target group-optimized information and measures. Since the investor dialogue relates to profit-oriented organizations, it can be classified as a discipline of corporate communication.

aims

The aim of the investor dialogue is to provide the financial community with all the information (company reports, fact books, presentations, IR pages on the website) so that the development of the company's value can be assessed in order to control the expectations of the market. Uncertainties and unclear communication can lead to an undervaluation of the stock as well as poor earnings numbers. On the other hand, overly optimistic statements about business development or profit prospects lead to a loss of confidence. The strategic goal is to increase the turnover of traded shares in order to avoid price fluctuations due to too low turnover or undervaluation. It is also a goal to know many investors in order to help them buy and sell shares and to make hostile takeovers more difficult.

organization

Carriers of communication is usually the IR department whose director is also called "Investor Relations Officer" (IRO) of a company. He is usually subordinate to the chief financial officer, the managing director or the head of the communications department.

Many listed companies commission specialized IR agencies for their investor dialogue. Since communication has increasingly had to follow legal requirements in recent years, IR departments often set up a legal department for financial market issues or employ appropriate specialists.

tasks

In addition to the statutory mandatory publications (ad hoc announcements), financial communication also includes the use of proven methods such as conferences and tours in order to achieve transparency and fair information for as many market participants as possible. Often, designated sponsors make a significant contribution to the company's financial communication.

According to the definition of the German Association for Financial Analysis and Asset Management (DVFA) from May 2006, "effective financial communication" is characterized by the following criteria:

  • Expectation management
  • Equal treatment
  • Capital market orientation
  • Continuity / topicality
  • Traceability
  • Materiality.

The work of financial analysts can also increase public awareness of the company. However, direct commissioning of financial analyzes by the company itself is considered dubious, as a conflict of objectives arises for the analyst.

Philosophical approaches

A scientific discussion of the investor dialogue has so far only taken place to a limited extent. The main currents here are approaches from New Institutional Economics and organizational or communication-scientific approaches.

Principal Agent Theory

The principal-agent theory is based on two parties, with one party (the agent) having an information advantage (asymmetrical information distribution) over the other party (the principal) due to its position, experience or training. Both parties strive to maximize their own benefit. There is a risk that the agent will exploit his position to the detriment of the principal. In the investor dialogue, the danger is that the IR department, as agent, deliberately informs the financial community incompletely or incorrectly. The financial community cannot review or control the agent's behavior. The classic solution in such a constellation is to create external incentives to make this misconduct unprofitable.

Transaction cost approach

The transaction cost approach measures as transaction costs all efforts that have to be made to initiate a transaction, to carry it out and to control it. In relation to the investor dialogue, these can be, for example, the costs of a potential investor that they have to pay in order to evaluate a stock corporation, purchase shares and determine the further development of the company's value. If information is difficult to obtain, the legal situation is unclear, or a public company is not trusted, the costs of the financial community increase accordingly.

Organizational and communication science approaches

Another scientific approach is to model the relationship between the financial community and public companies using communication or organizational theories. For this purpose, outdated communication models such as messaging from the 1950s are used. There is a sender (the IR department) here that encodes a message and sends it over a channel. The recipient (the financial community) receives this message, decodes it, and understands its content. In communication science, however, such models are considered too simple and were never designed to depict corporate communications.

The Communicative Constitution of Organization offers a much more differentiated approach . It is a collection of approaches, all of which assume that communication is the crucial element of every organization and therefore also of the public limited company. In particular, the Montréal School with its Text and Conversation Theory deserves special mention. It was largely shaped by James R. Taylor . According to the Montréal School, the investor dialogue is to be understood as a form of meta text . The IR department of a stock corporation interprets the internal processes and thus reduces the complexity for the financial community. This simplification in Metatext can mean that the financial community no longer has access to the raw data of the stock corporation, but an analyst or investor might have interpreted this data differently than the stock corporation itself and would have come to a different assessment of the share price. From this perspective, transparent communication of the internal decision-making bases and processes is of particular importance.

National IR Associations

IR training institutes

CIRO - Certified Investor Relations Officer, German Investor Relations Association

Web links

literature

  • Michael Dürr: Investor Relations - manual for financial marketing and corporate communication . 1995.
  • Klaus R. Kirchhoff, Manfred Piwinger: Practical Guide Investor Relations . 2005.
  • Patrick Kiss: Investor Relations on the Internet. A theoretical and practical analysis . Going Public Media, Wolfratshausen 2001.