Managing the Narrative: Investor Relations Officers and Corporate Disclosure

Although investor relations officers (IROs) play an important role in managing corporate communications with important stakeholders and in helping their companies achieve an appropriate valuation, the academic literature on investor relations is only in its early stages. IROs are responsible for communicating with the investment community and shaping the company narrative. As a result, IROs interact regularly with sell-side analysts and institutional investors and are at the center of many disclosure-related activities, including quarterly earnings conference calls and press releases, among others. In fact, because they manage so many important corporate disclosure activities, IROs are frequently referred to as “chief disclosure officers.”

We survey 610 IROs of publicly traded U.S. companies and interview 14 IROs to better understand their roles in managing companies’ communications with sell-side analysts and institutional investors and in overseeing corporate disclosures. Our survey explores numerous topics for which IROs are uniquely qualified to provide valuable insights, including: the reasons, settings, timing, and value of IROs’ interactions with sell-side analysts and institutional investors; how IROs control outsiders’ access to senior management; how sell-side analysts help IROs convey their company’s message to institutional investors; the value of various types of disclosures for communicating the company narrative; the role of IROs (vis-à-vis the role of CFOs) in preparing various disclosures; planning for and managing public earnings conference calls; the size and composition of the conference call queue; private “call-backs” after public earnings calls; the determinants of IROs’ internal performance ratings; and IROs’ experiences with Regulation Fair Disclosure (Reg FD).

The results of our study yield three primary takeaways. First, our study speaks to the value, nature, and timing of private communication between IROs, analysts, and investors. We find that IROs consider private phone calls to be more important than sell-side analysts, 10-K/10-Q reports, management earnings forecasts, and on-site visits for conveying their company’s message to institutional investors. About 40% of IROs indicate that private phone calls with members of the investment community after the earnings release but before the public earnings conference call starts are at least somewhat important, and some IROs we interviewed suggested these private calls help management prepare for the public call. In addition, over 80% of companies routinely conduct private “call-backs” with institutional investors and sell-side analysts after public earnings conference calls. While company management is unlikely to allow institutional investors to ask questions during the public earnings conference call, they typically give priority to investors—particularly those with a large holding in the company’s stock—for private “call-backs” after the conclusion of the public call.

Second, our findings shed light on the significant influence IROs have on corporate disclosures. We find that IROs have significant input on all forms of company disclosures, with nearly 70% of IROs reporting they have considerable influence on the substance and form of press releases and about 84% saying the same about the prepared remarks of public earnings conference calls. IROs also believe certain forms of disclosure (e.g., public earnings conference calls, road shows, press releases) are more important than others (e.g., 8-K reports, on-site visits), which suggests they are more likely to utilize these disclosure channels to communicate with analysts and investors. As the primary gatekeepers who control access to senior management, IROs indicate that they are more likely to grant requests for access to senior management—a private disclosure channel—to analysts with a long history of covering their company and to investors who work for a large investment firm than to Institutional Investor All-Star analysts or investors who work for a hedge fund. IROs significantly shape the preparation, execution, and post-call activities that surround companies’ public earnings conference calls, and they prioritize institutional investors with a large stake in their company and experienced analysts for private “call-backs” during the very important period of time immediately following public earnings conference calls.

Finally, several survey responses suggest public earnings conference calls—even the Q&A portion—often involve more “theater” than prior research has documented. Specifically, most IROs indicate that giving them an idea ahead of time of what questions to expect on the upcoming call is an important service sell-side analysts provide. Further, IROs say that important ways they prepare for conference calls include developing a script, preparing a list of possible questions and answers, developing a strategy for handling unanticipated questions, and rehearsing the call. Our interviews with IROs suggest that institutional investors who do not wish to speak publicly on conference calls—and thereby “reveal their hand”—use text messages or instant messaging to send their questions to sell-side analysts, who then ask the questions as if they were their own. The IROs we surveyed indicate that public earnings conference calls are the single most important tool for conveying the company message to institutional investors, which helps explain the desire of company management to carefully manage every aspect of these calls.

Our study offers numerous other findings that make unique contributions to the literature. For example, we provide evidence on the role of investors in “walking down” sell-side analysts’ earnings forecasts, and we shed light on the dual roles IROs play as both messengers for senior management and recipients of feedback from the investment community. Our results also provide evidence of managers’ reservations about interacting with hedge funds, and their ongoing caution about avoiding potential violations of Reg FD.

While prior studies on investor relations have made important strides by focusing on the benefits and consequences of IR programs, our survey results shed new light on the process of investor relations—how IROs perform their jobs, both in general and specifically as it relates to their interactions with sell-side analysts and institutional investors. Thus, our study improves our understanding of how IROs communicate the company narrative to important stakeholders. The insights we obtain about the process of investor relations would be difficult to obtain without conducting a survey.

We also provide new insights into IROs’ influence on corporate disclosures. While prior research has examined the role of CEOs and CFOs on corporate disclosure decisions, our findings indicate that IROs also have considerable influence over corporate disclosure, and that their performance is evaluated in large part based on their ability to manage these disclosures. Further, our findings on the usefulness of public earnings conference calls and private “call-backs” speak to the importance of supplementing written disclosures (e.g., 10-Ks, 8-Ks, management guidance) with these other interactions that help the firm “manage the narrative.”

Our study also adds to the literature by providing insights from company management on public earnings conference calls, which have generally been studied from the perspective of analysts or institutional investors. For example, by documenting the relative importance of activities before (i.e., advance notice of questions that will be asked, preparing a list of possible questions and answers), during (i.e., managing the queue), and after (i.e., private “call-backs”) earnings conference calls, we provide a rich understanding of the dynamics involved in this important disclosure event as well as new details about the nature, timing, and frequency of management’s private communication with members of the investment community after the conclusion of the public call.

The complete paper is available for download here.