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Zack embodies the nexus between asset management, equity research, and new internet distribution technologies. As an asset manager, he writes extensively about the changes and opportunities in online finance for investors, financial advisors and investor relations professionals. He previously... More
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  • All the news that’s fit to trade 2 comments
    Jul 9, 2009 04:24 PM

    As a buyer of PR services at different times in my career, I probably wasn’t a great client to work with.  Having cut my teeth on Internet marketing, where everything is measurable, everything is quantifiable (if you believe the numbers), I wanted to know what I would receive in return for my dollars earmarked for such services.  There was never an answer that addressed the metrics.

    IR services are similar.  Outside of the pump and dump schemes which are clearly jimmied just to inflate stock prices, I would assume that IROs and IR professionals have a similarly hard time quantifying their value proposition.

    Dick Johnson at IR Cafe has an interesting post today in which he reviews two recent studies examining the relationship between press coverage and stock price movement for individual stocks.  In his post, PR Does Matter, Johnson explains:

    Trouble is, influencing the market is not all about the numbers. It’s all about the numbers – plus getting the right people to pay attention.

    Together, the two posts conclue that a greater dissemination of company news and financial results influences lower bid-ask spreads, increase trading volume, and lower idiosyncratic volatility.

    Johnson’s take-away from reviewing the two studies:

    Bottom line: Issuing news has a measurable benefit for public companies in the capital markets – increasing volume, reducing trading costs and reducing volatility. More frequent news is better. Getting more reporters or news outlets to write about the company amplifies the benefit. That’s what the quantitative evidence says.

    Additional Resources:

    Themes: academic papers, business press, dick johnson, investing, investor relations, ir, ir cafe, pr
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This post has 2 comments:

  •  
    Interesting post, Zack.

    A key issue is the correlation between companies engaging in PR and them having a good story to tell. If companies do PR when they have a good story, then it makes sense that their stock trades up, but impact on the stock price, bid-ask spread etc. can't necessarily be ascribed to the PR. So any study of the impact of PR needs to compare companies with improving fundamentals that did PR versus companies with improving fundamentals that didn't do PR.

    Do you know if the studies cited by Dick Johnson did that?
    Jul 09 06:40 PM | Link | Reply
  •  
    Good point.

    From Dick Johnson's article:

    "No attention is given to the qualitative nature of the news – positive, negative or nuanced. The authors also do not explore why reporters decide to write more, less or not at all. (The Soltes study does analyze “busy news days,” when a flood of business or nonbusiness news overwhelms XYX Company’s little press release, and confirms that issuing news on busy days has little benefit – although companies obviously can’t control when Michael Jackson dies or GM goes bankrupt.)"

    No focus on "newsworthiness" -- mostly on volume and frequency.
    Jul 10 01:19 AM | Link | Reply
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