As a buyer of PR services at different times in my career, I probably wasn’t a great client to work with. Having cut my teeth on Internet marketing, where everything is measurable, everything is quantifiable (if you believe the numbers), I wanted to know what I would receive in return for my dollars earmarked for such services. There was never an answer that addressed the metrics.
IR services are similar. Outside of the pump and dump schemes which are clearly jimmied just to inflate stock prices, I would assume that IROs and IR professionals have a similarly hard time quantifying their value proposition.
Dick Johnson at IR Cafe has an interesting post today in which he reviews two recent studies examining the relationship between press coverage and stock price movement for individual stocks. In his post, PR Does Matter, Johnson explains:
Trouble is, influencing the market is not all about the numbers. It’s all about the numbers – plus getting the right people to pay attention.
Together, the two posts conclue that a greater dissemination of company news and financial results influences lower bid-ask spreads, increase trading volume, and lower idiosyncratic volatility.
Johnson’s take-away from reviewing the two studies:
Bottom line: Issuing news has a measurable benefit for public companies in the capital markets – increasing volume, reducing trading costs and reducing volatility. More frequent news is better. Getting more reporters or news outlets to write about the company amplifies the benefit. That’s what the quantitative evidence says.
Additional Resources:
- Dick Johnson’s IR Cafe
- Eugene Soltes’s News Dissemination and the Impact of the Business Press (U. of Chicago)
- Brian Bushee’s The Role of the Business as an Information Intermediary (U. of Pennsylvania)
- Top IR related articles from New Rules of Investing
