P1246990960igSlF

1
Shareholder Activism and the Role of Marketing
A Framework for Analyzing and Managing
Investor Relations Arvid O. I. Hoffmann Joost
M. E. Pennings
Faculty of Economics and Business Administration
2
Outline of Todays Presentation

• Introduction of the Research Team
• Motivation and Background of Project
• Framework and Illustration
• How to Proceed from Here Preliminary Research
  Design

3
Research Team

• Arvid Hoffmann Assistant Professor of Finance.
  a.hoffmann_at_finance.unimaas.nl
• Joost Pennings ALEX Investment bank Professor of
  Finance and Marketing.
• joost.pennings_at_finance.unimaas.nl
• Simone Wies M-F Student, future PhD candidate.
• Thesis topic How do company-investor
  relationship characteristics influence share
  price volatility and shareholder activism level?
• s.wies_at_student.unimaas.nl

4
Motivation Headlines from The Economist

• Upheaval at VNU is yet another example of
  increasing shareholder activism in Europe.
• Activist shareholders are getting tough with
  boards and managers.
• Investors are making life uncomfortable for
  boards in America.
• Keeping shareholders in their place Bosses
  around the world celebrate a series of victories
  over activist shareholders.

5
Importance of Investor Relations

• There is a growing importance of investor
  relations,
• but not all firms are always successful in
  managing the relationship with their
  shareholders
• This is regrettable,
• as firms can gain from successful investor
  relations programs

6
Benefits of Investor Relations

• A well-organized investor relations program can
• Improve corporate image (Gregory, 1997),
• Increase investors willingness to invest in a
  company (Craven and Marston, 1997 Carter, 2006
  Fombrun and Shanley, 1990),
• Reduce risk perception of investors, lowering
  firms cost of capital (Srivastava et al., 1997).

7
What is Investor Relations?

• Investor Relations (NIRI 2008) is
• a strategic management responsibility,
• that integrates finance, communication, and
  marketing.

8
What is missing in Investor Relations?

• Existing literature, however, perceives IR as
• the financial end of the communications function,
  or
• the communications end of the financial function.
  
• ? The role of marketing in IR is
  underexposed.

9
What is missing in Investor Relations?

• Marketings underexposure is unfortunate
• marketing literature offers many valuable
  insights for IR,
• marketers possess skills relevant to manage
  interactions with investors (cf. Lovett and
  MacDonald 2005).

10
What is needed to successfully manage Investor
Relations?

• To successfully analyze and manage IR
• existing IR literature needs to be completed with
  insights from the marketing literature.
• Take a Relationship Marketing perspective on IR.
• Investor Relationships as Market-Based Assets.

11
The Role of Marketing for Analyzing and Managing
Investor Relations
12
The Role of Marketing for Analyzing and Managing
Investor Relations

• Key dimensions of relation between the firm and
  investors
• Time horizon
• Risk Attitude and Risk Perception
• Relationship Orientation
• Relationship Evaluation Mode
• Trust
• Commitment
• Reciprocity
• Proposition congruence on key dimensions
  improves quality of investor relations and
  reduces (costs of) shareholder activism.

13
The Role of Marketing for Analyzing and Managing
Investor Relations
14
Research Design

• Objectives of empirical study
• Analyze relationship between quality of investor
  relations and congruency on relational factors
  between investors and firm.
• Analyze interactions between different relational
  factors (e.g., between time horizon and trust).

15
Research Design

• Step 1 Measurement Instrument
• Dependent variable quality of investor relations
  
• Incidents of shareholder activism
• Perceptions of firm/investors (e.g., corporate
  image)
• Capacity to raise new capital (debt/equity
  reinvestments)
• SP credit ratings (bonds)
• Independent variables key relational factors.

16
Research Design

• Step 1 Measurement Instrument (Continued)
• Control variables
• company size
• ownership nationality proportions
• free float
• institutional investor proportion
• industry effects
• New measures will be developed using an iterative
  approach combining depth interviews and test
  surveys.

17
Research Design

• Step 2 Data Collection
• Descriptive approach
• Combining surveys and experiments with financial
  data.
• Scope Euronext 100 (NYSE Euronext).

18
Research Design

• Step 2 Data Collection (Continued)
• Relational factors and perceived quality of
  investor relations
• Large scale survey with firms and investors
• Depth interviews and experiments with firms and
  investors
• Shareholder activism and control factors
• Thomson ONE Banker holdings of large
  shareholders.
• Financial Data on activism (proxy votes,
  proposals, etc.).

19
Research Design

• Step 3 Analyses
• Relate quality of investor relations with
  congruency on relational factors between
  investors and firm.
• Controlling for company size, ownership
  nationality proportions, free float,
  institutional investor proportion, industry
  effects, etc.

20
Research Design

• Step 4 Possible Managerial Implications
• Traditional bring congruence in key relational
  dimensions
• Employ formal risk management systems
• Reduce information asymmetries
• Show commitment to investors goals
• ...

21
Research Design

• Step 4 Possible Managerial Implications
  (Continued)
• Radical actively change composition of
  investor population
• Some firms actively target specific segments of
  investors known for high commitment and low
  turnover.
• ? A firms market-based assets may not be those
  it needs (cf. Srivastava et al., 1998)

22
Questions, Suggestions, and Advice on the Project