If you’ve ever found yourself off the IR awards list (or the short list, for that matter) your reaction was probably something along the lines of, “Well, they’re just beauty contests anyway and they really don’t signify much”. I know, I felt pretty much that way when I practiced investor relations on the corporate side. It seems there just were not enough trophies to hand out to all of the campers.
Unfortunately, I’m here to tell you that there is actually academic research that shows that being nominated for investor relations awards can help your stock price.
In a March, 2008 working paper, Professor Richard J. Taffler of The Management School, University of Edinburgh, together with Vineet Agerwal, Angel Liao and Elly A. Nash authored a study entitled “The Impact of Effective Investor Relations on Market Value”. In their study they use nomination for IR Magazine’s “Best Overall Investor Relations” awards over a three-year period as an indicator of quality investor relations. Their study shows that firms that are seen as having effective investor relations, as indicated by being nominated for the awards, earn superior abnormal market returns both in the year of nomination and the year following the awards.
The part of the study that is of the most interest to me is the quantification the authors put on the abnormal risk adjusted stock returns earned by firms in the year following their nomination for an award. The results show that all nominated companies earned 80 basis points per month superior market returns. When you compound 80 basis points per month over a full year, the result is an excess return of 10%.
So while the awards may be a beauty contest, they appear to be one where there is genuine prize money at the end.
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