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The fragile returns to investor relations: evidence from a period of declining market confidence

Research output: Contribution to journalJournal article

Published

Journal publication date2011
JournalAccounting and Business Research
Journal number1
Volume41
Number of pages24
Pages67-90
Original languageEnglish

Abstract

This paper assesses the capital market effects of investor relations activities during a period of high-profile corporate scandals. We find no support for the prediction that an established reputation for effective investor relations helped shield US firms from a perceived decline in management credibility and financial reporting integrity associated with Enron and related scandals. On the contrary, tests reveal that firms with an established reputation for superior investor relations activities fared worse on a series of market-related factors. Results suggest that distrust in corporate reporting practices spilled over to investor relations practices, and that best practice investor relations programmes developed during normal market conditions offered little protection from systemic declines in investor confidence arising from the corporate misdeeds of other firms.