Investor Relations €“ A Crucial Strategic Management Responsibility Tool For Succesful €˜Investor Search’ On Capital Markets

An improved investor relations strategy, grounded in capital markets experience, can help a company achieve a higher level of strategic communications, which consequently should position a company for maximum equity value at any given time. This expansion of multiple lowers a company’s cost of capital, positions it for more favorable financing terms, broadens its potential shareholder base, increases chances for analyst coverage, and increases the wealth of all stakeholders, including employees. In addition, everyone benefits from an IR function built with firsthand capital markets knowledge. Analysts feel comfortable knowing that all possible events, good or bad, will be communicated properly with the right messages. Portfolio managers feel the same way because their investment is presumably protected from a communications misstep. Finally, management wins because they build credibility with the markets, a major factor in determining multiple valuations. Our paper testifies that at least 20 percent and up to 40 percent of the total valuation at any given time is given by communication. This is a huge piece of a company’s market cap, worth tens of millions of dollars in shareholder wealth. Managing the art portion of the equation is ultimately IR’s responsibility; that person, either internal or external, needs to know what they are doing.