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 Kraljevica bb, Zajecar REPUBLIC OF [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

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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

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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 framework We used explorative research, which was realized beginning of 2011, with application of method of content analyses of Internet presentation of leading companies’ listed in New York (NYSE EURONEXT), London (LSE) and Belgrade stock

Fig. 2. New ways of e-communication with exchange (BSE). Exploring each individual market investors, Source: [13 (21 companies) included Internet presentations and pages of companies with the largest flow of shares A growing number of researches show that trading, as well as domestic companies which electronic forms of communication have increasing securities were most traded in Belgrade stock priority in the implementation of communication market in the past two years. Companies programmes. The reasons are manifold [13]. An considered were ranked in the stock market indices: electronic database NY100 (USA), FTSE (Great Britain) and Belex 15 and Belex Line (Serbia) (Table 2). Within • Enables the company to reach the widest group of companies’ Internet presentation, three categories investors, analysts, brokers and other financial of importance for investors and entire financial public; public information were considered, as shown in • Provides timely information; Table 3. • Gives individual investors the ability to receive information at the same time as institutional Table 2. investors; NY US 100 FTSE 100 BELEX 15/ • Lowers communication costs; BELEX LINE • Has a message selection option. Exxon Mobil Corp. BHP Billiton Limited NIS a.d. Beograd According to annual studies of the Swedish & Plc. financial consultant firm Hallvarsson & Halvarsson Chevron Corp. Royal Dutch Shell Plc. Imlek a.d. Beograd (H&H), corporate sites are still the leading source Procter & Gamble HSBC Holdings Plc. Aik banka a.d. Niš of information for analysts and the media, despite Co. the growing role of social media [14]. AT&T Inc. Vodafone Group Plc. a.d. Beograd

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Johnson & Johnson British Petroleum Plc. Energoprojekt stakeholders). Also, the difference between use of holding a.d. Beograd digital tools and Internet as investors’ General Electric Rio Tinto Limited & Soja protein a.d. communication media is evident. Main differences Co. Plc. Bečej are in the following: Wal-Mart Stores GlaxoSmithKline Plc. Metalac a.d. Gornji Investors’ Internet page – 34,1% American Inc. Milanovac companies and 20,5% British companies have Pfizer Inc. BG Group Plc. Tigar a.d. Pirot special page for investor relations on their web site; Serbian companies have no such page (0%); it is JP Morgan Chase Unilever Plc. Univerzal banka a.d. & Co. Beograd also interesting that 13,6% of considered Serbian companies have no site at all, meaning they are not IBM Corp. British American Agrobanka a.d. Tobacco Plc. Beograd present in the Internet, which is unacceptable in modern business surrounding; Coca-Cola Co. Ashmore Group Bambi Banat a.d. Beograd Shares’ value and historical shares’ value – Philip Morris Barclays Galenika compared to 100% of considered American and International Inc. Fitofarmacija a.d. British companies, only 36,4% Serbian companies Zemun (within 86,4% companies present in the Internet), Wells Fargo & Co. Tesco Messer Tehnogas show on their sites current values of shares and a.d. Beograd historical values of shares for certain periods; Werizon Marks & Spencer Alfa plam a.d. Contacts – only 9,1% of analyzed Serbian Communications Vranje companies have presented on their site persons Inc. from company’s team management and persons PepsiCo Inc. Lloyds Banking Group Vital a.d. , Vrbas responsible for certain areas of business which are McDonald’s Corp. Imperial Tobacco Mlekara a.d. of importance for investors; it is also noted that Subotica large number of companies have no complete Citigroup Inc. Glencore International Informatika a.d. contacts (phone, e-mail) for managers that could be Beograd of interest for investors and general public; Walt Disney Co. Carnival Carnex a.d. Vrbas Investors’ tool category – compared to high Kraft Foods Inc. InterContinental Dunav osiguranje percentage of using modern electronic tools in Hotels Group a.d. Beograd American and British companies, there is a great Hewlett-Packard Rolls-Royce Group Velefarm a.d. , lack of their use in Serbian companies; there is no Co. Beograd record of presence and use of Power Point Bank of America Burberry Group Telefonija a.d. , Presentation, audio contents, web conferences, Corp. Beograd blogs, RNS services…; in communication with

Table 3. Listed companies in our research investors and other interested parties, Serbian managers mostly use e-mail, documents in pdf format, and there is very scarce use of video technology; increasingly apparent is the use of RSS service due to the fact that included this service in its range of services for investors and brokers. Complete results of comparative analyses are shown in Fig. 3, 4 and 5.

% US 100100 86.4 A 100 Table 4. Researched categories of importance for GB investor information 34.1 50 20.5 0 9.1 0 5 Data and results 0 0 The results of comparative analyses of American, I IR CSR British and Serbian companies listed in stock Category market and in scope of representative stock market indices, have shown huge differences in investors information approaches (as company’s key Fig. 3. Category I - Internet pages (Web sites)

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% trading in a certain period. It is also interesting that 100 100 100 100 100 100 100 100 when it comes to exploiting available information 100 86.4 77.3 tools, Serbian managers use very little (or none at 68.2 77.3 80 64.4 all) Power Point Presentation, audio and video 60 messages, web conferences etc. Maybe it’s because 36.4 40 Serbian managers are still not literate enough when 6 20 6.8 9.1 it comes to IT, or maybe they’re too rigid when accepting business innovations, which may be a 0 BP MGT OS BD SV FR M C subject of entirely different research. The goal of presented research of quality of Category relations with domestic companies’ investors was a USA picture of current state of affairs in domestic capital Fig. 4. Category II – Information for investors market and to provide guidance to all capital market anticipant towards further development and improvements of such activities. The analyses of % research results and comparative analyses of 100 100 100 100100 100100 100 American, British and Serbian companies have 95 97.7 97.7 100 90.9 88.8 particularly pointed out a few areas which could be 86.4 88.6 95.5 86.4 90.1 75 improved in future period and which could, in that 80 way, present the foundation of similar future 60 researches: U . Reporting above prescribed legal minimum is 38.6 S… 40 25 required in order to build quality relations with 20.5 investing public. In that sense, domestic 20 9.1 9.1 0 4.5 0 companies can put extra information and 0 0 0 0 0 0 comments in their annual reports, Internet PDFPPTWBC A V M E NLRSSRNS B presentations and other materials meant for investing public, in accordance with other Category developed capital markets; . Companies that wish to actively anticipate in Fig. 5. Category III – Tools for investors competing for foreign investors should improve their reports in English. Even though giving information in English and publishing them 6 Conclusion doesn’t represent prescribed obligation, apart As we can see from presented comparative from companies whose shares are listed in analyses, Serbian companies listed in Belgrade Prime market of Belgrade stock exchange, stock market are way back compared to American good practice of investor relations assumes and British companies regarding the information of timely and equally extensive information of investors and other interested groups via digital foreign investor; communication in the Internet. Serbian managers . Publishing information of company’s securities still prefer reports in written form and direct, trading on its own Internet page and publishing physical contact with investors. Still, it is good to prices of shares on its home page, affirms know that over 86% Serbian companies own an company’s orientation to capital market and Internet site and use e-mail for communication with represent activities that are fairly easy realized interested parties (88,6%). There is also growing by taking over data (free of charge) directly availability of financial reports in .pdf formats in from Belgrade stock exchange or some of data the past few business years, as well as media distributors (Data vendors); conferences in many analyzed Serbian companies. . Internet presentation pages intended for What is also noted and far from world’s standard investors should be organized in such a way to when it comes to investor relations, are non- be user friendly, easy to use and simple to find existing special pages for investors, together with all the information necessary. Sole existence of non-existing percentage of information on Serbian these pages is not enough to fulfil the companies’ corporate social responsibility. Also, expectation of investing public, and the over 60% Serbian companies have no shown record approach to their organisation, planning and on the Internet page of their price range and shares maintaining should be planned and organized;

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. Investor relation activities on Serbian capital [4] National Investor Relations Institute – NIRI, market are still in forming phase. Building Investor Relations Definition, 2010, these relations requires significant attention in http://www.niri.org/FunctionalMenu/About.as the following period, while it’s necessary to px bear in mind that modern relations with [5] London Stock Exchange, Investor Relations – investors include, besides financial reports, a practical guide, 2010, marketing and PR skills. The existence of http://www.londonstockexchange.com/home/ir qualified personnel in a company that will deal -apracticalguide.pdf exclusively with building and managing [6] Ryder, N., Regester, M., Investor relations, investor relations is an assumption of Hutchinson Business Books, 1989. successful performance of a company that [7] Dolphin, R.R., Approaches to investor wish to finance and affirm their business on relations: implementation in the British capital market; context, Journal of Marketing . Practice show that investors and shareholders Communications, 9, 2003, pp. 29–43. extremely appreciate direct contact with [8] Miller, E., Investor relations. In P.Lesly (Ed.), management and persons in charge of investor Lesly’s handbook of public relations and relations. Therefore, domestic companies may communications (4th ed., pp, 164-213), Probus be suggested to increase activities in holding Publishing, 1991. meetings with representatives of investing [9] Cole, B.M., The New Investor Relations – public, both in the country and abroad. Besides Expert Perspectives on The State of Art, direct meeting, development of modern Bloomberg Press, Princeton, 2004. technology provides cheaper forms of internet [10] Guimard, A., Investor Relations –Principles or video conference, by which, with fairly low and International Best Practice of Financial cost, wider audience of investors could be Communications, Palgrave Macmillan, 2008. reached. [11] “Special report: Inside Microsoft’s IR Web Site” Investor Relations Business, Vol. 8 Issue References: 3, 2003. [1] Lake, D., Graham, J., Investor Relations. [12] Marcus, B., Competing for Capital – Investor Euromoney Publications, 1990. Relations in a Dynamic World, John Wiley & [2] Ellis, C. D., How to manage investor relations, Sons, NJ, 2005. Financial Analysts Journal, 41 (March – [13] Argenti, P., Barnes, C., Digital Strategies for April), 1985, pp. 34–41. Powerful Corporate Communications, [3] Petersen, B.K., Martin. H.J., CEO perceptions McGraw-Hill, 2009. of investor relations as a public relations [14] ROI for on-line corporate communications, function: An exploratory study, Journal of ppt presentation, http://www.halvarsson.se/ Public Relations Research, 8(3), 1996, pp. 173-209.

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