Impact of investor relations on M&A outcomes

Abstract

Per Marston (1996, p. 477), investor relations (IR) is "the link between a company and the financial community, providing information to help the financial community and the investing public to evaluate a company." Through IR activities such as company presentations to and meetings with investors, firms provide information about their strategies, results, and prospects to their investor base. Research has identified that IR impacts positively a variety of dependent variables, including valuation, analyst coverage, and corporate reputation. However, IR has been less successful in impacting valuation in times when investor confidence is low. As the announcement of M&A activity may be associated with significant investor uncertainty in a company's updated prospects for the period following the deal, I examine whether (1) the quantity of IR activities prior to the announcement of a deal, (2) investor rankings of company IR quality, or (3) the presence or absence of a conference call with investors in conjunction with the announcement of a deal impact (a) the cumulative abnormal returns of acquiring companies' shares in the immediate period surrounding the announcement of the deal, or (b) the likelihood that the potential acquiring company is able to close the deal successfully. I find a positive relationship between a conference call after an acquisition announcement and the likelihood that a company would complete the deal but did not find a significant positive relationship between IR efforts and acquiring company stock returns surrounding an acquisition announcement.