IR Releases and their Effects

An extremely interesting article, titled "Are Investors Influenced By How Earnings Press Releases Are Written?" written by Elaine Henry takes a look at IR Releases and their effects on those who read them.

The article was written based on the two part study she had conducted. The purpose of the study was to gain an increased understanding of the firm-investor communication process. The first part of the study looked at genres of IR releases. She took a look at how the length, usage of numbers, complexity of information and tone of article had an effect on how readers reacted to the article.

The second part of the article used event studies to gauge the effect of the releases. Effects in share price, specifically abnormal returns. Abnormal returns are whether a firm's stock exhibited higher or lower returns around the time of an event.

Conclusions of the study found that longer press releases had less of an impact than short, concise releases. Positive tone induced a positive reaction. However, if the tone had overly praised the company or was too overboard with positivity, it contributed to a negative feeling. Numerical intensity could potentially create negative effects. Again, the amount of numbers used needed to be easily understood and couldn't flood the article.

Importance of Relationships

It is extremely important to have a strong relationship between your company's IRO's and the rest of the business community. In this context, the rest of the business community involves the company's investors, financial analysts as well as the rest of the financial community that can be potential investors.

Many IRO professionals believe that the relationship between an investor and an IRO means more than the actual numbers on Wall St. A strong relationship will overcome a dip in share price and the negative media attention of a scandal or situation that involves your company.

But how do we measure relationships? We can directly ask investors and financial analysts of their experience with your company and the IRO's they've dealt with. You can also ask all investors to give feedback in the form of questionnaires. Also, it's most likely that a relationship is strong if an investor has invested with the company for an extended period of time.

Let's take two companies, Disney and Apple. Disney is more likely to rely upon these relationships because they are not frequently coming out with new products that have a direct effect on their share price or brand in the eyes of the consumers. Apple however is constantly coming out with cutting edge technology that is re-inforcing its brand image and affecting its share price.

Disney needs to consistently engage in strong relationships and reinforce their "family experience" and "strong and reliable" share price. Apple doesn't have to rely on relationships as much as its cutting edge products will attract consumers and keep it in the fore-front of its consumers and investors minds.

SOX Act

The Sarabanes Oxley Act was initiated in 2002. Most say it was response to the fraud involved with the Enron scandal. Regardless, it is to be followed by all public companies. The Act has 11 Titles.

I. Public Company Accounting Oversight Board
II. Auditor Independence
III. Corporate Responsibility
IV. Enhanced Financial Disclosures
V. Analyst Conflicts of Interest
VI. Commission Resources and Authority
VII. Studies and Reports
VIII. Corporate and Criminal Fraud Accountability
IX. White Collar Crime Penalty Enhancement
X. Corporate Tax Returns
XI. Corporate Fraud Accountability

To me, the most important part of the SOX Act is title V. This ensures that the auditors must not be connected to the organization and completely impartial. This is an attempt to bring legitimacy to the auditing process. Unfortunately this has brought up additional costs to companies. Each title adds significant costs to each companies' responsibility in order to comply with the SOX Act.

Good for us, as investors, but does it only hurt the companies that were conducting ethical and trustworthy business?

Comparing Blogs to Other Social Media

Social Media-

Examples of Social media are websites like facebook, linkedin, blogger, myspace, and twitter. These sites enable internet users to connect with just about anyone in the world and to publicly post virtually anything they'd like. However, what is your preference? Does your preference change depending on what you are searching for?

Myspace is not used as much in the corporate world. Facebook is used by companies, but varies depending on the industry. Linkedin is more for professionals as themselves, rather than companies individually. Blogs are open to anyone, but often run by those representing their company. Twitter allows users to update 140 character messages either directing people to websites or other twitter account messages.

For me and I believe IRO's as well, I look for credentials in order to bring validity to what I read. The amount of people following a twitter account, amount of people following a blog or the amount of friends of a facebook account helps establish this validity. However, there is always that question in my head of whether or not this is the OFFICIAL twitter or the OFFICIAL facebook of a company.

My preference for search credible information through social media is facebook and now twitter. What about yours? Where do you search for information on companies and what do you use to build that credibility?