The Impact IR Has On a Company’s Valuation

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New studies have shown that Investor Relations make a large impact on a company’s valuation. One study done by TMX Equicom with the help of CIRI (Canadian Investor Relations Institute) was focused on exactly that. The online survey polled members of the Canadian professional investment community and IRO’s across Canada. Key findings are:

  • 98% of respondents from the investment community agree IR has an effect on a company’s market valuation.
  • 93% of investment community respondents claimed they would pay a premium for a company with more credible IR practices, with 69% indicating they would pay a premium of 10% or more for a company with more credible IR practices.
  • 67% of investment community participants said they would assign a discount of 10% or more to a company with less credible IR practices

For full results, go to http://www.equicomgroup.com/survey/

An Australian investment community has followed those in USA and Canada by saying that IR can have a big impact on company valuations. In a survey that fund analysts and managers conducted for the AIRA (Australasian Investor Relations Association), 89% say good or bad investor relations can affect valuation.

The survey also finds that:

  • 60% of respondents think “excellent” IR can 5% to a stock
  • 36% say that the best IR can add between 5-10%
  • 24% think that great IR can contribute more than 10%
  • 79% say the maximum discount for poor IR practices could cause stock to be discounted by more than 15%

‘This shows the vast majority of fund managers and analysts who own and write research on companies believe investor relations impacts on value,’ says Ian Matheson, AIRA’s chief executive, in a press release.

‘In my view, meaningful quality investor relations can influence the market’s understanding and P/E of a company,’ comments John Murray, managing director of Perennial Value Management, also in the release.

This study reflects the findings of the aforementioned Canadian survey. Other US surveys come to the same conclusion. IR does have a big impact on a company’s valuation.

A recent example of IR impacting how a company performs on the market, would be LinkedIn vs. Facebook. LinkedIn has done a wonderful job communicating clearly with the public and investors about their continual growth and future plans. FaceBook, pre and post IPO, have had many looming unanswered questions that have caused their value to fluctuate greatly.

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