Investor Relations on Capital Markets: Comparative Analysis of American, British and Serbian Listed Companies

Advances in Fiscal, Political and Law Science Investor Relations on Capital Markets: Comparative Analysis of American, British and Serbian Listed Companies Bojan DJORDJEVIC Faculty of Management Zajecar Megatrend University Belgrade Kraljevica bb, Zajecar REPUBLIC OF SERBIA [email protected]; http://www.fmz.edu.rs Abstract: - Stockholders and other interested parties exchanged information in writing by means of physical submission, while today with just a click on any known company’s Internet page it’s possible to acquire both information needed and its financial situation. The aim of this work is to indicate the lack of corporate culture and investor communication on Serbian capital market by analyzing investor relations via e-communication tools of some of the best American, British and Serbian companies. Also, the author is stressing the fact that quality of investor relations must be a part of every company's strategic vision. Key-Words: - stockholders, investor relations, communications, internet tools, capital market, stocks, exchanges 1 Introduction unrealistic regarding the company’s future, since Investor relations and relations with the financial their role is to ‘sell’ the company to new public refer to different forms of communication employees, buyers, distributors, and investors. The which a company uses when building relations with forecast of future results also demands evaluation those who provide means for its growth and of one’s ability to run a company, which can lead development. This makes existing and potential too very optimistic grades from the analysts’ investors the prime financial public, but one should perspective. Therefore, management must regularly not overlook the importance of others involved, analyses a company’s business and compare their those that have substantial influence on investors’ forecasts with the ones made by analysts. perspectives and opinions. In relations with the financial public, besides professional, well- informed investors the targeted public is also 2 Definitions of Investor Relations individuals who, as a rule, are neither professional Modern ‘investor relations’ as a discipline was investors nor are equipped with comprehensive defined in the late 1970s [1]. Different academics information or broad financial knowledge. Good and practitioners of investor relations defined it in and active investor relations help a company to various ways. In general, ‘investor relations’ can be provide a fair price for its stocks, and also provide seen as a connection or link between companies access to extra capital when needed. and the investor community. Investor relations is an Providing information about business results is overall process by which a corporation the most significant opportunity for communicating communicates with the investor community, with investors. Achieved results provide proof that explaining the company’s future challenges and a company is capable of reaching its goals and the opportunities, discussing present strategy and past market’s expectations. Published results must be performance, and developing a constituency of detailed enough for analysts and investors to informed and interested investors) [2]. Conducted reliably evaluate the company’s value. This does effectively, investor relations can have a positive not necessarily mean that financial reports are effect on a company’s total value relative to the always the most efficient means of communication. overall market and a company’s capital cost [3]. It often happens that numbers and accountancy According to the definition of the American rules suppress transmission of all the necessary National Investor Relations Institute (NIRI), information. Management, for example, is often relations with investors represent a complex ISBN: 978-1-61804-191-3 210 Advances in Fiscal, Political and Law Science strategic company activity, which is a product of Basically, the investor relationship department of finance, communication, marketing, and business corporations deals and communicates with law application, and aims to provide two-way influential financial groups. communication between company, financial public, The financial community consists of the and other subjects, which leads to a fair price for following sixteen influential financial groups: stock the company’s securities [4], [5]. exchange member firms, customers’ brokers, The difference between these two definitions security analysts and individual analysts, unlisted implies the scope of the investor relations dynamic, or over-the-counter dealers, investment bankers, and that new dimensions are being added to commercial bankers, registered investment investor relation activities. Investor relation is advisory services, insurance companies and nothing but a defensive or aggressive attempt to pension funds, mutual funds and investment trusts, stimulate the company’s value and share price [6]. investment counselors, trustees of estates and Ultimately this is not true. ‘Investor relations’ are institutions, financial statistical organizations, not only responsible for stimulating firm value and investment magazines and financial publications, share price, but also are important in other striking large individual shareholders, debt rating agencies, ways. However, an investor relation is the financial portfolio managers and lender banks [8]. Whatever end of the communications function, rather than the the principle activities and whoever the audience, communications end of the financial function”, communicating and transmitting relevant, concise meaning investor relations start with financial ,trust worthy, real time information are the key activities and finish when that financial information activities of investor relations. is communicated to its audience [7]. Thus investor relations can be seen as a task of the company management in order to provide timely, accurate, 3 E –communications with investors useful, meaningful, understandable and complete One of main ideas that runs through corporate information about the company’s fundamentals, social responsibility (CSR) is transparency, i.e., present and past situation, and future prospects to clearly showing the current state of affairs and the the investor community, which incorporates the company’s future intentions. To survive in a disciplines of marketing, communication, changing business environment the company must accounting, and finance, and influences the value satisfy the needs of various interest groups, i.e., the of the corporation. The impact of governments and stakeholders, among whom are the investors, that the various institutional requirements (SEC, stock is, the shareholders and stockholders. Thus we exchanges, etc.) also have a positive influence in enter the public relations (PR) arena. The era of “e- providing timely, accurate, and meaningful communications” began in the 1990s with wider information to the investor community by the Internet usage. With the change in ways of companies. By practising various activities, communicating, investors’ needs also changed [9]. investor relationship departments communicate Previously investors or other interest groups could information to the investor community. The general obtain company information in written form or by investor relation activities are depicted in Table 1. talking directly with the company’s authorised manager. The possibility of a company’s data being‘ on-line’ and available on a company’s Internet page changed investors’ habits [10]. In order to maintain their position in the market, companies must lead with proactive strategy and foresee possible demand and changes in the market. This is how major companies work, such as Microsoft, which prepared a list of the most frequently asked questions and answers on its web pages, enabling web casting conferences and prepared presentations [11]. Using the Internet in relations with investors not Table 1. Investor relation activities only brought Microsoft lower costs but also a cheaper way of promoting the company. Since new The purpose of investor relations is to make a electronic possibilities changed the structure and proper connection or link between the company’s way of investing, they also changed the nature of management and the financial community [8]. relations with investors [12]. Therefore, companies ISBN: 978-1-61804-191-3 211 Advances in Fiscal, Political and Law Science must be aware that active usage of Internet According to their 2009 research, 90% of presentations for communicating information to analysts, the media, investors, and professional investors also provides them with communication journalists consider corporate Internet sites the media. In other words, investors can make inquires most important source of financial information via e-mail, define data they want to receive by of companies whose securities are listed on the newsletter, engage in a conference, etc. stock market; 77% of investors confirmed that companies’ Internet sites have the most influence on their opinion; 74% of investors use micro-sites for investor relations at least once a week and 30% use them daily; The majority of companies have placed corporate movies, presentations, and web casts with transcripts; Only about 3% of companies actively use a blog as a form of communication, and Fig. 1. Standard forms of e-communication with 90% of companies have their own Internet sites investors which include parts that refer exclusively to investors. 4 Methodology and research

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