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Pierpaolo Singer

Management Research Department

University of Salerno

Via Ponte Don Melillo – Fisciano (SA)

Tel +39.089.963021

Fax +39.098.963505


Claudia Cacia

Management Research Department

University of Salerno

Via Ponte Don Melillo – Fisciano (SA)

Tel +39.089.963021

Fax +39.098.963505


submission for Proceedings CD

The Role Of Web Investor Relations For Mitigating And Manage Stock

Exchange Liquidity And Enterprise Risks


The main factor of success of risk management and thus for the company lies in the implementation

of an efficient process of risk management based on a systems that optimize the information flow.

The Investor Relations Manager plays a key role in the value creation process as a vehicle of

information between company and the financial market. In this paper we build a model that helps to

explain how the investor relations manager, primarily through internet and company web site,

should increase liquidity, support enterprise risks management and thereby boosting value. The

aims of this paper is to propose a web investor relations grading outline. In the first part of the

article we underline that a growing part of enterprise value depends on investor relations activities.

Than we implement a map of the relation between web investor relations - and communication- and

different classes of business risk. Overall, our results aim to support the hypothesis that Web

investor relations activities improve Stock exchange liquidity.

Keywords: Web, investor relations, liquidity, value, risks.


The value of a firm depend on its ability to produce cash flows and the uncertainty linked with such

cash flows. The high uncertainty about firm value provides incentives for investors and prospective

investors to engage in costly information acquisition. Therefore, although the value depends on

firms capacity to generate cash flows, it is likewise essential for value creation process the

capability to transfer this information to the market. The way in which firms can disclose the

information are various, out of all these the investor relations activities aimed at resolving

information asymmetry problems. Differences in firm disclosure are driven by economic motives to

lower informational asymmetries and are likely to have economic effects. The economic effects of

firm performance information are expected to increase with the extent to which disclosure activity

and communication infrastructure make the information widely, quickly and cheaply available to

economic agents (Bushman and Smith, 2001). The benefits of information are expected to increase

accordingly with the dissemination of data on firm performance through investor relations

activities, the organization of investor relations and the amount of information provided to

investors, specially by new communication vehicles. In addition, information management is also

finalized to credit and risk capital raising, therefore plays a crucial role for an efficient resources

allocation in capital markets and represents a highly relevant purpose in any economic system

(Stigler, 1961).

In light of this introduction, the purpose of this study is to analyze the relation between investor

relations, internet, liquidity and enterprise risks and their impacts on Stock exchange liquidity. The

focus of this article primarily lies on the requirements that firms should meet in order to ensure an

efficient risk management within a company, secondly on the role of investor relations for

mitigating and manage stock exchange and liquidity risks and finally, on the role of internet as

helpful vehicle in the boosting value process realized by investor relations activities. We propose

the following roadmap in order to give to the reader a clear understanding of the steps of our study:

1. Conceptual framework

2. Corporate communications in financial studies

3. Web investor relations ad value

4. Capital market, share price and value creation: the virtuous circle

5. conclusion

The study ends with the conclusions and some open matters that allow presupposing possible future

directions of research for the academics.

2. Conceptual framework.

Risk concept became significantly important in economic discipline due to rapidly change of

operational context in which firms operate on. Knight (1921) argues that “we live in a world of

change and uncertainty in which a large part of decisions are made by rudimentary and superficial

expectation and estimate”. According to Knight, risk mean “a quantity likely to measurement”, or

an uncertainty which can be measures. Consequently, the author limit the use of the uncertainty

only to non quantitative cases. Sassi (1949) argues that “risks arise because of lack of knowledge, is

inseparable to this and continuously change to the vary of our potential forecast, even without

disappear”. Chessa (1929) states that risk is the main element that characterize the business, and

every activities are bearers of different kind of risks. Managing risks is one of the primary

objectives of firms to immunize it of risks became from diverse business functions. The concept of

risks as performance variance is widely used in finance, economics, and strategic management.

With either the variance or negative variation understandings, risk refers to variation in corporate

outcomes or performance that cannot be forecast ex ante. Miller (1992) argues that the label “risk”

has also commonly been assigned to factors either external or internal to firm that impact on its

risks experienced. Leaving aside here the discussion about the definitions of risk, according to

Floreani (2005) “the risk (or stochastic variability) refers to the intrinsic randomness of events,

while the uncertainty is the lack of knowledge”. Company must be flexible in order to follow risks

dynamics faced in the course of its life. This involves a clear risks identification, the possibility of

occurrence and impact on the company, all accompanied by a monitoring designed to manage the

development over time.

Anyway, risk can create opportunities, value and wealth for all stakeholders. The main factor of

success of risk management and thus for the company lies in the

implementation of an efficient concept of risk management based on

information systems that optimize the information flow. The companies have to

face the challenge of identification, assessment and control of the various

types of risk. This issue is even more complicated for companies quotes on the

Stock Exchange, for which the risk management include a range of new

aspects. Complementary to the traditional credit risk are risks associated with

the volatility of markets, with which companies operate It looks at how

integrated the business risks can be identified (Bertini, 1968):

• External risks, such as competition, regulation, economic trend, new

technologies, information technology, capital availability;

• Managerial risks, such as customer satisfaction, human resources,

product pricing, customers retain, products development, profitability,

quality, licensing, health and safety, fraud, purchases management, etc;

• Financial risks, as fiscal management, cash flows, free cash flow,

derivates, legal acts, portfolio diversification, ROI, liquidity, exchange

rates, interest rates, payments, investments;

• Strategic risks, like business portfolio, asset allocation, market, share,

leadership, business structure, business cycle, know how, planning,

M&A, Joint Venture, alliances.

For the purpose of this work we focus only on financial risks, in particular on

liquidity risk. Liquidity is risky and it varies over time both for individual stocks

and for the market as a whole (Chordia et al., 2000; Hasbrouck and Seppi,

2001; Huberman & Halka, 1999). Liquidity appears to be a good candidate for a

priced state variable. It is often viewed important for investment decisions, and

recent studies find that fluctuations in various measures of liquidity are

correlated across stocks (Chordia, Roll, & Subrahmanyam (2000), Huberman &

Halka (1999), Lo & Wang (2000) empirically analyze the systematic nature of


Liquidity is a broad and elusive concept that generally denotes the ability to trade

large quantities quickly, at low cost, and without moving the price. Brennan & Tamarowski (2000)

defining it as “the ability to buy or sell an asset at short notice without granting a price concession”.

Kyle (1985) argues that the marginal impact of a trade on the price of the shares could be measured

by the illiquidity of the market in a firm’s shares. The author also theorized that the illiquidity of a

stock depended on the degree of information asymmetry about the intrinsic value of the stock. In

view of the fact that through voluntary disclosure firms reducing information asymmetry between

companies and investors, the cost of capital would be decreased, with positive effects on share

liquidity (Bushee & Noe 1999, Healy & Palepu 2001). Liquidity hypothesis (Brennan &

Subrahmanyam, 1995; Brennan & Tamarowski, 2000; Irvine, 2002) suggests that the presence of

more informed traders results in a lower bid-ask spread, which reflect the adverse selection costs.

This hypothesis proposes that initiating recommendation reports bring additional information to the

market thus encouraging market participants to trade in the shares of the company in which an

initiating recommendation report has been made as information asymmetry has been reduced. So,

the same voluntary disclosure could also result in a higher number of financial analysts involved

and could attract more investors interested in long term results (Eccles et al., 2001; O’Brien &

Bhushan,1990; Lang & Lundholm, 1996). As a result, firms commitment to the timely disclosure of

high-quality financial accounting information reduces investors’ risk of loss from trading with more

informed investors, thereby attracting more funds into the capital markets, lowering investors

liquidity risk (Diamond & Verrecchia 1991; Botosan, 2000; Leuz & Verrecchia, 2000). Capital

markets with low liquidity risk for individual investors can facilitate high-return, long-term

corporate investments, including long-term investments in high-return technologies, without

requiring individual investors to commit their resources over the long term (Bushman & Smith,

2003). In the same way, IR strategies often attempt to use information intermediaries, such as

analysts to increase firm visibility and attract investors.

Relate to this framework our paper connects the growing theoretical and empirical literature that

examines the disclosure and provide evidence regarding the importance to firms of some of the key

features of IR, namely disclosure, visibility, and attracting investors and analysts. Anyway, there

has been little academic research that has focused on the Web Investor relations and their role for

mitigating and manage the liquidity and enterprise risks. Due to the paucity of discussion of the

complete WIR in the literature, the next section presents evidence on the components of an effective

IR strategy.

3. Corporate communications in financial studies.

In a context of growing complexity and dynamism, communication assumes a critical role for the

growth of business, to achievement and maintenance of competitive advantage and to survive in the

markets of interaction (Golinelli, 2008). Many studies have shown a strong link between good

corporate governance, profitability and return on investment (Brown & Caylor, 2004; Anson et al.

2004), but the value creation depends also on the reviews that are formed in the market relating to

strategies, policies and objectives of the company. Perceptions may vary in relation to different

types of players, so it is necessary to identify actual and potential investors in order to adequately

gather their expectations and, therefore, create value (Guatri & Massari, 1992). In this perspective

the value represents a network of relationships that are established between the firm and its

environment thanks to the communication activity. This allows, inside of the firm, the knowledge

diffusion and the cultural of value creation roots in knowledge and know how of the firm, on the

external side instead, it helps to make transparent and rigorous the relationship between key players

of the business in order to acquire resources and support. By way of the communication process,

firms can spread value created and create value throughout a policy aimed at improving its image

(Bernstein, 1988). Therefore, communication becomes a strategic element of corporate governance

that allows the strategic credibility creation, increasing of trust and to obtain consensus of social

actors. In particular, financial and economic communication is “the process by which we inform

and persuade investors of the values inherent in the securities we offer as a means to capitalize

business” (Marcus & Wallace, 1997). Then, through the communication company can achieve and

maintain economic stability all the way through the satisfactory remuneration turn of the items and

the suitable and timely coverage of financial needs (Freeman et alt., 2007).

Information management aimed at the pursuit of financial strategies for raising credit and risk

capital becoming essential for the efficiency of the resources allocation within capital market.

Resources allocation has, in fact, some problematic issues in relation to the availability of

information and problems related to agency relations (Jensen & Meckling, 1976; Alchiam &

Demsetz 1972; Fama, 1980; Ross, 1973; Berehold, 1971). These problems would be easily

overcome if the information could be exchanged without cost, and whether the incentives of those

involved in the relationship were consistent with each other. In reality, these conditions occur

rarely, so in order to overcome these problems is necessary to support various kinds of agency

costs. The only way to prevent agent from maximize its utility, to the detriment of the principal, is

on stock markets, ownership, labour and information efficiency. Those factors driving managers to

principal welfare pursue, represent an external supervision function. So, appear the role of

communication as influence factor in the relationship between corporate profitability and the

discount rate of corporate risk, thus impacting positively on the ability to create value. Transparent

and qualified communication strategy towards present and potential holders of capital allows for

weighting the investment risk as well as the facility of less onerous capital incoming. (Stiglitz &

Weiss, 1981). It is on this basis that, around the seventies, took off the economics of information;

Stigler (1961) laid the foundations of modern theory, by studying the activities aimed at reducing

the uncertainty of the choices, and different degrees of information in the market (Akerlof, 1970).

To this were added the studies devoted to the efficiency conditions of securities markets, which

called efficient markets where the prices of shares traded reflect the information relevant to

evaluating the performance of the securities themselves, in the absence of asymmetric information

(Fama, 1970). In a market economy as such, the bond yield is closely related to the risk that

characterizes them. However, there are no markets characterized by perfect information symmetry,

so securities prices do not always incorporate the real value of the shares (Healy & Palepu, 2001).

Markets are made up of players with different knowledge endowment, therefore, those less

informed, be afraid of opportunistic behaviour (moral hazard) from people who offer poor quality

goods (lemon), give up to invest or give rise to performance required because of greater perceived

risk, which is reflected in the stock market at a lower security price. Buyers, aware of the possibility

that sellers could put their products at a better than value prices, are attach an average value to the

different investment alternatives, with the result of over-estimate lemon value and underestimate

higher quality goods (adverse selection) (Akerlof, 1970). This involves not indifferent damage to

the businesses, especially those offering high quality products that will work by implementing

appropriate communication about business strategies along with economic and financial

information. Theoretically, the problem of the lemons and agency could be solved by offering more

information, or setting of rules that require companies to disclose certain information to the market

considered to be of general interest, or particularly relevant to investment decisions (mandatory

disclosure). Through mandatory disclosure is possible reduce inside information abuse for some

individuals inside firm (insider trading) and obtain a higher efficiency over the entire capital market

through the effective representation of business performance (Leftwich, 1980; Watts &

Zimmerman, 1986). This involve the voluntary information (voluntary disclosure), whose objective

is to increase the quantity and quality of information available for market. (Leland & Pyle 1977).

Leuz & Verrecchia (2000), Welker (1995), Helay & Hutton & Palepu (1999) find that information

asymmetry, is reduced as the level of disclosure rises. Other instrument are related to principal

monitoring ability improvement to the agent work, including stock market, take over mechanism,

management by board of directors or inclusion of independent components (Fama & Jensen, 1983).

However, the effectiveness of the solutions proposed by the literature is influenced by many

economic and institutional factors, such as market characteristics, owners costs that can raise the

information costs, imperfections in the regulation and incentives problems for the board of directors

and intermediaries. These considerations underline the extreme importance of economic and

financial communication compared with criticality arising from information asymmetries between

firm and the current and potential investors. At the same time, information has a cost both of

production and use, that impact operators in different ways, on the basis of different functions

utility and diverse levels of risk aversion (Di Stefano, 1990; Quagli, 2001; Allegrini, 2003). Costs

are clearly of benefit in reducing the apparent cost of capital through the improvement of the level

of qualitative and quantitative disclosures. Benefits are connected to costs, distinguishable in:

• reducing the cost of capital through the improvement of the level of qualitative and

quantitative disclosures (Botosan & Plumlee, 2002; Richardson & Welker, 2001;

Gietzmann & Ireland, 2005; Amihud & Mendelson, 1986; Sengupta, 1998; Kothari &

Short, 2003);

• an improvement in securities prices in connection with their risk reduction. This theory has

been confirmed by several studies showing that greater disclosure enhances stock market

liquidity and thereby reduces cost of equity capital through reduced transaction costs or

increased demand for a firms securities (e.g. Demsetz, 1968; Amihud and Mendelson, 1986

& 2008);

• consolidation of stakeholders relationship and, as a result, a greater capital flow related to

increase of corporate credibility and reputation of management and to a strengthening of the

internal information system derive from intangible asset of knowledge;

• Increase information intermediation (Bhushan, 1989; Healy et al., 1999; Lang and

Lundholm 1993 and 1996; Healy et. al, 2001; Francis & Philbrick, 1998; Bowen & Davis

&, Matsumoto, 2002; Ashbaugh & Pincus, 1999)

• Reduce agency costs and information asymmetry (Leuz, & Verrecchia, 2000; Welker,

1995; Healy & Hutton & Palepu, 1999; Jensen & Meckling, 1976; Chow & Wong-Boren,

1987; Low 1996);

• Shares liquidity increase (Diamond &Varecchia,1991; Glosten & Milgrom,1985; Frost &

Gordon &, 2002)

Understandably, for an efficient communication policy, the benefits arising from economic-

financial disclosure should be outweigh costs associated with the information dissemination.

Therefore, economic-financial disclosure is an essential development tool for enterprises that, in no

circumstances, should renounce to a professional administration of this kind of communication.

4. Web Investor relations and value.

Investor relations are costly activities undertaken by firms to align the

expectations of the shareholders with that of the company. However, with the

advent of Internet, investor can now access information faster and more efficiently than ever before

(Deller et al., 1999). The role of web investor relations in the value creation process be in motion by

the relationship with each system operating in the market In particular, through a communication

flow the investor relation manager should modify the perceptions of financial system, which at the

same time is influenced by the others elements. Before looking at the effect of a web investor

relations activities on the enterprise value, we must consider the intermediate steps of this process.

At first one we must consider with awareness what we mean by web investor relations and value.

4.1. Web and Investor Relations.

The relationship with the financial market is a particularly key issue for firms, whether they are

quoted or not. Indeed, the value assigned to the securities, opinion to the validity of corporate

strategies and consensus that market recognize to firms depends on the relationship that companies

are able to create with the financial partners. The fundamental driving force of this relationship are

“Investor relations”, namely the set of communication activities aimed to the financial market and

relative to economic and financial results, growth prospects, trade and strategic development issues

of companies (Di Martino, 2001). Marston (1996) describes IR as the link between a

company and the financial community. With the introduction of new technologies and

communication channels, quantity of information is increased as well as the possibility of reaching

a wider number of subjects. It is a recent but fast-growing phenomenon. In contrast, this process led

to a growing global competition, both on the supply side of goods and services, and demand-side

resources, especially financial resources. Therefore, the fierce competition has supported the

training of those subjects specialized on investments tracking (Higgins, 2000). The selection of

investment opportunities is achieved through detailed economic and financial information. The

company must be able to provide this information in order to allow the process of analysis /

processing / evaluation to the selection of the best investment opportunities. Hence, the need to

build a network of relationships with financial institutions based on a continuous and effective

communication process, to support the growth and renewal of business and the information demand

of the market. These relationship are to be activated by appropriate economic and financial

communications policies, which enable the effective and timely communication to financial markets

operators of those information designed to facilitate the selection and control of investments. So,

information complex, has caused a transformation of the natural configuration of investor relations

function, that became responsible for coordinating the relations with the various stakeholders, in a

logical in line with corporate image policy. According to NIRI (1998) “Investor relations is defined

as a strategic corporate marketing activity combining the disciplines of communication and finance

that provides present and potential investors with an accurate portrayal of a company’s

performance and prospects. Conducted effectively, investor relations can have a positive effect on a

company’s total value relative to that of the overall market and the company’s cost of capital". So,

through presenting new information to its participants, a corporation can

influence the market. To achieve this objective Investor Relations Manager

should explain the value drivers of competitive advantage and strategy in

order to draw a firms appealing profile that represent an investment alternative

to the market. This is made possible through the dissemination of information:

1. Operative, namely expressive of firm ability to create value and


2. Strategic, that is related to long-term guidelines to assess growth

opportunities and future value creation;

3. Financial information, related to business investment models and their

weight on income and value.

Those information could be adapt to dissimilar market trader and stakeholders and broaden by

different communication vehicles too. The most common traditional instruments of investor

relations in practice are the corporate report, the interim report, the annual general meeting, press

and financial analyst conferences, roundtable and one-on-one discussions as well as telephone

conference calls. Among the various vehicles, internet has been a growing use, allowing an

information flows enhancement in terms of quantity, quality, spatial and temporal issue. Many

companies worldwide publish their corporate financial information on the Internet. Oyelere et alt.

(2003) argue that “Financial information provided on the web includes comprehensive sets of

financial statements, including footnotes; partial sets of financial statements; and/or financial

highlights that may include summary financial statements or extracts from such statements”.

According to Bollen et alt. (2006) “The main objective of the use of the Internet for IR activities is

providing individual investors with comprehensive and timely information that previously was

available only to a select group of interested parties, such as institutional investors and analysts”. If

institutionalization and globalization of capital markets have helped to create greater transparency

in economic and financial communications dissemination process, technology has provided a

powerful tool because it happened (Higgins 2000). The web make possible the differentiation of

the official companies websites information than other one. Through the official website firms

could offer a high number of quantitative data, also historical, on the IR section to investors.

Moreover, access to the internet (through browsers and search engines) can provide employees and

investors with information on political, legislative, and commercial issues, or best practice

techniques and, of course, the web site is an effective way of communicating standard operating

procedures, risk management objectives and ethical policy. The Investor relations web site is a part

company site that “holds information designed to meet the needs of key stakeholders” (Rowbottom

et alt., 2005). It can also increase the information appeal thanks to the speed of their acquisition,

which can be obtained in association with information customization or even hierarchy of users. In

addition, the web provides the satisfaction of the needs expressed by various stakeholders,

combining to traditional media the benefits of data dissemination costs reduction, stakeholders’

knowledge, and information timeliness and completeness improved. (Lymer & Debreceny, 2003).

Both issues are of broad importance for evaluations of investment.

In light of this issue, literature debate move from corporate reporting to web investor relation. Out

of all these authors, Deller (1999) analyze the Internet role as a tool for investor relations activities,

and conducting an analysis in order to develop a panel of WIR tools. In the same year, Hedlin

identified the development phases of communication via internet. Another study aimed to identity

attributes of web financial reporting determining, was carried out by Debreceny, et alt. (1998).

Furthermore, Ettredge et alt. (2001) investigated how information was presented on websites, and

proposed a description and quantification of company financial information, and consequences

resulting from their inclusion. In a subsequent work (2002), the same authors has analyzed the

forces that have major effects on business decisions concerning voluntary communication strategies

affected by the first one. The introduction of Web 2.0 by means of forum, social network, chats,

providing “word- pass” the power to transformation product image or company image, has

prompted the company to put in consideration the role of online information as a means to gain

visibility. In light of this issue, it is essential a reconfiguration of investor relations activities, like

the difference between "real" and "virtual". We refer to market dichotomy understood as economic

space in which differentiate transactions are negotiate. Dichotomy that is expressed in the existence

of a virtual market (i.e. marketspace) next to a physical market (i.e. marketplace) (Singer, 2002).

Technology, specifically Internet, is the element that allows the implementation of real-virtual,

offering the opportunity to achieve a considerably higher number of subjects and, hence to amplify

the needed effect. The development and innovation degree of online communication strategies

becomes, for that reason, a source of competitive advantage as possible element that influence the

businesses development and survival. So, information management becomes a driver of value. The

role played by intangible value drivers has prompted companies to use new communication tools to

ensure proper representation of market performance and to reduce information asymmetries derive

from insufficient information level. As a result, in this framework internet plays a key role as it

offers the opportunity to disseminate more information relating to financial results, organizational

structure and rules of conduct adopted, as well as guide values than traditional mediai. The resulting

reduction in the investors perceived risk, resulting from the quantity and quality of information

increase, give birth to capital inflows and a lower cost and, consequently, better securities

performance (Bini, 2000)ii. While the positive effect on stock price is no doubt important, we point

out in this paper another role of investor relations. From our perspective, it is interesting to look at

the web role as a tools that reducing information costs and boosting firms value. For all this

elements, despite unequivocal importance of traditional media, web has become a major business

and financial communication vehicle.

4.2. W.I.R and value.

Through the elimination of stickiness and typical costs of traditional communication vehicles,

internet bring to typical market conditions for perfectly competitive markets described by

neoclassical literature. Information completeness for economic agents, lack of information

asymmetries, market equilibrium with price equal to minimum average long term costs, theoretical

generate a maximization of social welfare. However, this is far from realization because imperfect

information is again existing in virtual markets for visibility reasons: in fact internet is not

equivalent to the visibility of websites. Nevertheless, the choice of web information disseminating

acquires a high significance of openness, transparency, and commitment to be known by market

(Siano, 2001). Internet allow consensus among stakeholders, a good strategic credibility and

contribute to increasing trust and reputation. The separation of spatial and temporal dimensions,

derived from technology, involve in a fiduciary relationship between firms and market, derived

from large number of information. Trust to enterprise management, carried out with the purchase or

retention of securities, generates a reduction in the volatility of the same and greater protection of

the shares price (Ryan & Jacob 2005). In this sense, business trust and reputation have a key role for

the premium price. At the same time web presents same disadvantages compared to traditional

information media, similar to information security hackers attacks related or poor accessibility to

information disclosed otherwise potential errors in data transferring. However, the main problems is

linked to reliability of the information, namely the credibility of web contents. Even though this

problems, the web investor relations contribution to minimize fluctuations in the short term is really

valuable. The web investor relations manager activities represents a tangible opportunity for

business to be known and appreciated by the market as a choice of investment and, therefore, is an

chief vehicle for relationship between firm and market. Despite this, even if web investor relations

is the basis of business value distribution and recognition, it is not easy to establish the existence of

a correlation between web investor relations activities and medium to long term increasing value.

Certainly, the correspondence between external - i.e. market - and internal value represent a valid

indicator of communication and web investor relations effectiveness, which participation aim to

minimize this discrepancy. Similarly image and reputation evaluation is a good system for

communication strategy judgement, even if difficult to implement. Consequently, we can assert that

communication has no direct bearing on long-term value, but indirectly acts on it through an

appropriate stakeholders delivery in order to optimize its perception and, at the same time, helps

alignment between internal and external measure. In this framework Bharadwaj (2000) deals the

importance of technology and their potential on enterprise performance, since, companies that are

able to create technological expertise can benefit from superior performance resulting from

increased revenues or reduced costs. For these reasons, web investor relations contribute to process

of value creation by improving the quality of corporate strategy and making possible the pursuit of

growth policies. In financial terms, this results means higher incomes and hence more value

(Stewardt, 1991). In light of the research that has been reviewed is clearly evident

the increasing significance of web investor relations as a corporate function as

well as value creation vehicle.

5. Capital market, share price and value creation: the “virtuous circle”.

The main responsibilities of Investor Relations Manager is to spread information in consonance

with firm strategic objectives. The main objectives of Investor Relations strategy are primary

subservient to share price evolution and substantial for value creation processes. This assertion does

not argue that share price is the only goal of companies, but argues that a trend price positive can

activate a “virtuous circle” that leads to value creation and to achievement of investor relations

strategic objectives (Ryan T. M., Jacob Chad A., 2005) (Figure1).


The firm value creation, in fact, on one hand depends on financial performance, and secondly

on the way in which those are interpreted by the marketiii. In most cases the responsibility for

economic information’s dissemination is on investor relations manager, which is not only

responsible for disclosure. The Investor Relations Manager, in fact, supports the company in

preparing strategy and business history, on the basis of qualitative and quantitative attributes,

industry, competitive landscape and value. In order to optimize this activity, IRM must be able to

work as Chief Financial Officer (CFO), or managing director (CEO) and Board of Directors (BoD),

and have high management and problem solving skills over strong communication skills to

shareholders. In fact, lonely information does not determine shares value, but is essential the

interpretation and perception of itself, because capital market opinions can affect firm positioning.

Disseminate information and carry out the disclosure is very different issue from understanding of

what the market is expected by the company and its management. So, the way in which the market

reflects information is an investor relations manager’s competences function, that increasingly is

assuming a strategic role. So, Investor Relations Manager must be able to anticipate and estimate

the impact of firm actions on market, especially during M&A operations, dividends distribution and

new products introduction, for the reason that any operational, strategic or financial enterprise

decision, is reflects on capital market and produce a variation of shares price, competitive position

and financial community. The strategic key lies in ability to understand the capital market,

successfully positioning the company and grow investor’s relationship and trust, in order to increase

management credibility, build consensus and improve firm image in potential investors mind, with

the final goal of maximizing company value (Cacia, 2009). Creating value means, above all,

increasing in economic capital, or rather firm’s value as an investment mean. On firm results,

environmental macro and micro economic influence and by investors perceptions depends stock

price – i.e. EPS (earning per share) - as its fluctuations. Reasons that lead to price variation, mainly

dependent on historical and future performance also on the way in which they are communicated

and perceived by market operators. The highest firm value as they form, to be perceived and

measured by shareholder should move about market value, as well as on prices stock (Bertoni A.,

Tamarowski C., 2002). Without phase of deployment value in the market price, the value creation

process itself must be regarded as imperfect (Guatri & Massari, 1992). The diffusion of value

created phenomenon is particularly important for investors because "only when value created

moves in price these investors have the opportunity to measure the advantage that they obtain from

creative processes and be able to have it (Guatri & Massari, 1992). Therefore, investor relations

manager must permit the value created shift in market price, which facilitate the move of economic

value into market valueiv. This depends on two key factors: 1) Firm image and notoriety are the first

one. These are key variables for understanding efficacy and risk related to communication process.

In fact, hardly firms characterized by a poor reputation - as public knowledge - is able to make

credible the news spread. Therefore, firm must strive to ensure an increase of its reputation,

however without be more than definite critical thresholds from which could derive negative effects

like value damage, linked both to excess of acquisition “popularity” charges compared with

benefits and increase in risk related to information disclosure to the financial community in the

event of company negative performance achieved. In the event that firs in the face of inappropriate

behaviours adopted is subject to a "loss of image", the negative effects that flow from it, in terms of

negative return on securities market - are larger in case of it has a superior reputationv. Vice versa

image, understood as a firm representation to public, creates and distributes value in market price

when increases relying on consensus and confidence obtained by business partners and investorsvi.

Therefore is essential that company accurately assess effects of these factors in order to endorse

value efficient transfer in the securities market price of business. The second element is recipients

attitude to understand and give credibility to information disclosed by firms. This attitude depends

on their ability to understand links between investment and profitability, short and long term results,

between dividend and total return of investment, and so on (Guatri, 1991). This relation shows the

Web role as strategic tool with a lower costs compared to other informational tools. This allow a

lower cost of information disseminating against a better market information. If Investor relations

manager is able to understand market dynamics and his players needs, he could manipulate those

variables capable of maintaining an high shares price. Multifaceted firm opportunities arising from

this state. The stock price determines the value of firm’s cost of capital. The cost of capital

corresponds to price that investors are willing to pay for each share, therefore under condition of

equal gain, the higher the share price the lower the cost of capital are, because the firm will

distribute less shares in exchange for equal capital raised. (Botosan, 2006). This notion is

fundamental to identify business ability to generate profits and remain competitive in the market.

So, keep a low cost of capital should be a major of Investor relations manager in order to create

value for shareholders. Moreover, the maintenance of high stock price depends on the overall firm

trends A low cost of capital rises trade number and firm opportunities to raise funds, thus opening

the possibility of pursuing growth strategies, development and profit. Likewise, a more profitable

firm is more exposed to shareholders and market opinion and consequently can attract those

operators who see in a highly equity price an investment opportunity (such as sell-side). The

investor relations is the key of this relationship thanks to programs and achievements in field of

enhancement of economic capital communications activity. This purpose can be achieved through a

continuous communication process that allows a clear, truthful, accurate and timely information

dissemination, sufficient to permit investors a correct assessment of investment In terms of

efficiency and effectiveness, this is achievable only through the Web intervention and then through

a reconfiguration of Investor Relations in Web one. Web Investor Relations Manager must make a

greater knowledge of the businesses and markets governing mechanisms in order to facilitate their

orientation toward long-term indicators for investments assessment The least perceived risk

resulting from information provided clear, credible and based on trust, represents a higher value for

the enterprise. Where company realizes a lot of financial reporting and enables financial analysts to

implement promptly a large number of information (to be recast and forward to final subjects), it

can also reduce their effort in terms of time and resources used for research, purchase of

information (Amihud & Mendelson, 1986; Amihud & Mendelson & Wood, 1990; King et alt.,

1990; Diamond & Verecchia, 1991; Easley & O'Hara M., 2004). In this way, the reduction in the

cost of information acquisition, promotes number of analysts increase who follow the company, and

increases the accuracy of their assessments, at the same time, resulting in a wider consensus.

(Brennan & Tamarowski, 2000). In turn, increase in the number of players who follow the company

would generate a reduction in information asymmetries referred to current and potential investors,

thus encouraging growth of securities liquidity. This flow, not only generating a better climate on

the business, but also would generate a reduction in the cost of capital. In this way, is possible to

carry on virtuous cycle resulting from an increase in stock market prices, consequently, the creation

of value. It is clear at this point, the advantage that the company can get, because a greater inflow of

capital will unavoidably translate into higher stocks liquidity and in a lower enterprise, in terms of

return required for 'investment. For this reasons we argue that WEB Investor Relations, whose

managers have capital market competences, representing an invaluable source of enterprises

advantage, either implementation and address phases, as well as to maximize the value (Ryan &

Jacob Chad, 2005). In this sense, Web investor relations should be recognized as a primary source

of competitive advantage and as significant functions in the process of creating value.

6. Conclusion

This current study deals mainly with a framework for establish whether investor relations activities

can reduce the business risks through an appropriate application of web features. The liquidity of

equity markets depends on information quality. Quality economic and financial disclosures are one

means to reduce information asymmetries across traders and increase the ability of equity traders to

effectively execute stock trades when desired and at reasonable costs. Those possibility depend of

the existence of an investor relations department that through web can distribute information and

reduce their costs. In this way, high quality web disclosures can enhance market liquidity. The first

contribution of this study is the extensive investigation of the role of investor relations and the web

in a perspective pertinent to how reduces the cost of capital increased stock exchange and value

To the aim of offer support on the important relations between economic- financial disclosure

quality, investor relations, web, market liquidity and value, we suggest that through an high quality

web investor strategy, firms could trigger a “virtuous circle” that from beginning increase and

manage stock exchange liquidity and enterprise risks to end securities price contributes to value

creation, in a process that repeats over time. As a second contribution, this dissertation offers a

dynamic perspective pertinent to how manage the web investor relations and create value for the

business. The study illustrate that there is good evidence of how firm’s can improve their disclosure

strategies trough the web investor relation to crop the benefits of reduced information asymmetry

and increased “trust”. In our view this is a greater solution in large listed corporations with a highly

dispersed ownership. If firms take such an approach could improve the clarity and effectiveness of

their corporate disclosure strategy. An improved corporate disclosure strategy yields an enduringly

reduced cost of capital, increased liquidity and value. This will be majored with an acceleration of

change in the world economy that require more flexibility and adaptation, particularly for business

listed in stock market because of investor relations role to mitigating uncertainty, perception of risks

and value. Of course the analysis has its limits related to the absence of an empirical test. Ultimately

the discussions led to the following assumption: without a precise definition of the characteristics of

economic -financial communications via web, that considerate the different literature propositions

to identify the elements shared by the more, is not meaningful go to empirically assess the impact

of investor web relations. Therefore, the analysis could be enlarged in this perspective. However,

our purpose was to highlight the importance of web investor relations activities to disseminate high

quality information and their aptitude to activate a dynamic virtuous cycle in the value creation



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FIG. 1: The virtuous circle of investor relations activities and prices of securities


Source: our elaboration

“[…] the New York Stock Exchange has proposed that listed companies must disclose specific corporate governance
information on their Web sites”, cfr. Rowbottom N., Allam A., Lymer A., op. cit., 2005, pag. 35. “Una comunicazione
più completa e trasparente sulle attività intangibili favorirebbe l’aumento di quel patrimonio di fiducia e credibilità che
è il fattore principale di un accesso meno oneroso da parte delle imprese al mercato dei capitali”, cfr. Cordazzo M.,
Maestri P., op. cit., 2004, pp. 65, 66.
According to Bini in an inefficient market company information has no value because companies have an incentive to
produce on a voluntary basis only favourable information. "In literature it is known that market inefficiency is directly
proportional to firms’ arising capital. Most companies retain operating free cash flow, more enterprises information
flow is rarify and become opportunistic. In an inefficient market, where listed companies occasionally make use of the
supply of capital, they are brought to communicate only information that can change up the its shares price, with the
effect of increasing the risks for the investor (investor is exposed both to the unexpected and to circumstances which are
known but not disclosed to the market" Bini M. Informazione societaria volontaria in Italia:le specificità e le prospettive
di cambiamento, in GUATRI L., Eccles R.G., Informazione e valore. Il caso Italiano ( a cura di), Collana Impresa e
Valore, Egea, 2000, pp. 50.
Many studies have analyzed effect derived from economic and financial communication. Out of all these studies
Healy e Palepu K (Healy PM., Palepu K.J., Information asymmetry, corporate disclosure, and the capital markets: A
review of the empirical disclosure literature, Journal of Accoutning and Economics, vol. 31, 2001, pp. 405-440.) argeue
even researches limits about disclosure effects, typically related to potential endogenously of variables examined.
Therefore, the link between communication and positive results could not depend on whether the disclosure resulted in
the consequences for company, but rather indicate that companies tend to disclose more during periods of positive
performance. Furthermore, with reference to studies focused on effects of political communication changes, is reported
difficulty related to when this change occurs, that it is very difficult both using analysts evaluations and disclosure
It is possible to distinguish three different types of market value:
• stock market value, to be construed as a value relating to trading in small lots of securities which do not affect the
control of the company;
• negotiated value of company shares;
• acquisition value for potential buyers of company. (Guatri, 1991).
It is useful to note that the image and reputation are two things firmly bound together, so that it has come to speak of
"dual image- notoriety (Corvi, 2000).
There is, therefore, in contrast to the reputation, a risk associated with an increase of business images; Corvi (2000)
argues that "the image can always be improved, however, respecting the constraints resulting from economic”