IR papers

Short-sellers seen off by site stops

IR papers

Short-sellers seen off by site stops

The IR dividends of company site visits and why ‘fast and symmetrical’ responses on social media pay off, according
to Jeff Cossette in his review of global IR research

New research shows companies can discourage short-sellers by offering more investor/analyst site visits.Sampling firms listed on the Shenzhen Stock Exchange in 2009-2019, Chinese investigators find that, on average, a firm with one site visit per year experiences 10 percent less short-sales volume (on shares outstanding) in the following year than firms offering no visits.‘Company site visits have a powerful signaling effect and can, eventually, reduce the probability of short-sales,’ study co-author Siyuan Yan, assistant professor in finance at the East China University of Science and Technology, tells IR Magazine. ‘Firms facing short-selling threats should adopt an active investor relations strategy aimed at reconstructing market perceptions and sustaining investor alignment.’Notably, the researchers find companies with temporary negative earnings the least willing to offer site visits. ‘Yet those are the firms that should most intensify direct, in-person communication with their investors,’ Yan adds. ‘Doing nothing just sends the wrong signal to the market.’Along with mitigating the effects of short-selling, the researchers find firms offering more site visits got more and better press coverage.‘While site visits are in-person communication, they also have spillover effects on informational intermediaries in the capital market,’ observes Yan. ‘Our finding helps explain how IR activities can drive desired information to individual market participants.’A separate group of investigators finds that Chinese analysts who conduct a site visit on the day of a lunar eclipse subsequently issue more pessimistic earnings forecasts. Naturally, the greater the lunar occlusion, the darker the outlook.How to handle online criticism
Done right, social media can be a powerful CSR communications tool. Its two-way nature provides the perfect medium to nurture trust and grow sustained shareholder support.But this open dialectic is a double-edged sword: social media also provides a fecund breeding ground for other people’s opinions – many of them spiteful. Get social media wrong, and you’d have best kept your fingers off Twitter entirely.Indeed, perhaps for fear of getting burned, relatively few firms let their CSR communications play with social media. Of those that do, many get it wrong. Now, two English scientists say they’ve figured out a sure-fire way to get it right and reap the full benefits of social media for CSR communications.‘Lots of companies use social media but not necessarily in a way that welcomes dialogue,’ says Anthony Grimes, senior lecturer in marketing at the University of Sheffield. ‘Many simply ignore negative comments about their CSR communications. We thought if companies were more confident about what an effective response looks like, they’d be more willing to engage.’To discover the most effective response to a bad online review, Grimes and his colleague Katie Dunn, a senior lecturer in marketing at Sheffield Hallam University, conducted an experimental examination of two central characteristics of a company’s response: the speed at which it is made and its content – specifically its ‘symmetry’, either implying an intention to change as a result of the stakeholder comment, or defending the firm’s existing policies.‘We find that, in isolation, highly symmetrical responses have only a small effect on audience perception of organizational legitimacy and CSR,’ says Dunn, who makes the same observation about speedy responses.‘The only type of response that truly, fully mitigates the detrimental impact of negative user-generated comments is one that is both fast and symmetrical. The power of the additive effect came as something of a surprise.’The study authors recommend IROs develop templates to facilitate the quick construction of high-symmetry responses. ‘At the same time, companies need to have a really clear plan about who is responsible for identifying and responding to negative posts,’ concludes Dunn.‘That way companies are better equipped to maximize the potential value and minimize the considerable risks of communicating their CSR activity within social media.’

World o’ research

Only about half of 77 small listed South African firms contacted by a ‘mystery retail investor’ bothered to respond, say Stellenbosch University researchers.
A study of 167 Tehran Stock Exchange-listed firms finds a direct link between financial reporting quality and director remuneration.

An analysis of Q1 2020 earnings call transcripts shows that the more Republican-leaning a firm’s campaign contributions were, the less likely it was to voluntarily disclose risks related to Covid-19.
The best way to handle negative investor questions posted online is with an indirect and optimistic response, according to Chinese investigators.
Firms that voluntarily disclose the sex diversity of their workforce get more and better press and attract a larger number of gender-focused ESG funds, say US researchers. The more female employees, the greater the effect.
An analysis of 42,000 tweets by 60 of the world’s largest companies finds those related to intellectual capital are most likely to be retweeted.
New research shows the filing frequency of corporate Edgar disclosures has a negative impact on future stock returns. Specifically, every additional filing within the past month preceding a given filing reduces the average expected return by nearly 0.2 percent over the two weeks post-filing.
An Australian study of US companies finds stock performance of those in the ‘sin’ triumvirate – alcohol, tobacco and gaming – is not significantly affected by negative ESG media coverage. Instead, firms in candy and soda, steel, banking and insurance are the most susceptible to investor fallout caused by an undesirable media spotlight.