Chapman Et Al 2022

THE ACCOUNTING REVIEW American Accounting Association
Vol. 97, No. 2 DOI: 10.2308/TAR-2018-0361

March 2022
pp. 77–106
Investor Relations, Engagement, and Shareholder Activism

Kimball L. Chapman
Washington University in St. Louis
Gregory S. Miller
University of Michigan
Jed J. Neilson
The Pennsylvania State University
Hal D. White
University of Notre Dame
ABSTRACT: A dedicated investor relations (IR) function facilitates direct and ongoing dialog between management
and shareholders. This paper examines whether this form of engagement mitigates activism that relies upon support
from other shareholders. We find that IR engagement is associated with increased investor confidence in
management and the board, as well as a lower likelihood of activism, with this deterrent effect becoming stronger
when there are fewer frictions surrounding the development of mutual understanding and trust with investors. We
also find that when firms do experience an activist campaign, firms with IR engagement have less costly and
contentious campaigns, including a lower likelihood of CEO turnover, than those without such a commitment. Taken
together, our findings suggest that direct and ongoing IR engagement is an important factor in achieving mutual
understanding and trust between the firm and its shareholders, which deters activist investors and mitigates the
costly escalation of initiated campaigns.
JEL Classifications: G10; G32; G34; M40; M41.
Keywords: shareholder activism; shareholder engagement; investor relations; corporate governance.
I. INTRODUCTION
I
n this paper, we examine whether firms can avoid or mitigate the costly effects of investor activism through the use of a
dedicated investor relations (IR) function (i.e., hiring of an internal IR officer/team). Our analysis is motivated by the fact
that significant changes in recent years have broadened the ability of activist shareholders to exert influence over other
shareholders’ views, resulting in a struggle between managers and activists to influence shareholder opinion regarding the best
course of action for the firm.1 We contend that firms can combat this sort of activism through a dedicated IR function, which is
We are grateful for helpful suggestions from Thomas Bourveau, Jeffrey Callen, Dane Christensen, Paul Fischer, Dawn Matsumoto, Nayana Reiter, Aida
Wihad, Spencer Young, and workshop participants at Boston University, The Pennsylvania State University, the 2017 Brigham Young University
Accounting Symposium, The University of Texas at Austin, the 2017 University of Toronto Accounting Conference, the University of Washington, and
Washington University in St. Louis.
Kimball L. Chapman, Washington University in St. Louis, Accounting Area, St. Louis, MO, USA; Gregory S. Miller, University of Michigan, Accounting
Area, Ann Arbor, MI, USA; Jed J. Neilson, The Pennsylvania State University, Accounting Department, University Park, PA, USA; Hal D. White,
University of Notre Dame, Accounting Department, Notre Dame, IN, USA.
Editor’s note: Accepted by Rodrigo S. Verdi, under the Senior Editorship of Mary E. Barth.
Submitted: June 2018
Accepted: February 2021
Published Online: March 2021
1
In particular, activists can now influence firms much more efficiently due to (1) recent shareholder-friendly rules that increase proxy access, (2)
emerging information technologies that allow activists quick and broad reach to contact other investors and launch initiatives, and (3) more
concentrated institutional investor ownership, which reduces heterogeneity in the investor base, and thus the investor coordination problem (Larcker
and Tayan 2016). See Section II for more discussion on the evolution of investor activism.
77
78 Chapman, Miller, Neilson, and White
designed to directly and repeatedly engage in dialog with shareholders. These interactions can help increase investors’
understanding of the firm and its strategy, as well as build investor trust and confidence in management, resulting in greater
alignment and support of management. This alignment and support can mitigate the likelihood and severity of activist
campaigns, as argued by various practitioners and industry experts (Ernst & Young 2015; J.P. Morgan 2015; National Investor
Relations Institute [NIRI] 2016a; BlackRock 2018). Deloitte (2015) notes that ‘‘efforts to address shareholder activism are most
productive when they are viewed and conducted in the context of a robust IR engagement program, usually found within the
company’s investor relations department.’’2 Despite strong industry support for IR engagement in combating activism, we are
unaware of empirical evidence on such a strategy. Our intent is to fill that void.
There are several ways that IR engagement can establish and maintain investor alignment and support of management that
is helpful for combating activism. First, the primary purpose of an IR function is to regularly engage in dialog with investors to
help them better understand the firm and its prospects, which reduces information asymmetry and clears up investor
misunderstandings. Second, a dedicated IR officer facilitates a unified and consistent message by coordinating firm
communications to the market, which reduces the likelihood of mixed messages that can negatively impact management
credibility. Finally, IR engagement builds trust with the investing community, which helps combat activist attempts to create an
alternative narrative about the firm in support of their campaign for change. As noted in a survey of IROs, Brown, Call,
Clement, and Sharp (2018) find that ‘‘trust with the investment community was a common theme’’ in IRO discussions about the
role of IR in firm messaging. The benefits of regular and targeted dialog are supported by prior research, which suggests that
communication is enhanced by the increased interpersonal familiarity and trust that develop through repeated successful
interactions (Steiner 1972; Shah and Jehn 1993; Gulati 1995; Brochet, Miller, and Srinivasan 2014). As a result of the
relationships and trust developed through engagement, activists are less likely to be willing or able to persuade shareholders to
oppose or replace management.
Despite the compelling argument for IR engagement mitigating activism, there are reasons to believe that it may not have
such an effect. First, investor concern for returns may override their relationship with firm management. Second, investors may
be unwilling or unable to engage much with the firm, particularly when investors face time constraints.3 Third, greater
transparency into management’s views/strategies may increase the possibility of perceived differences with investor views and,
thus, increase the potential for more explicit disagreement. Finally, in the absence of a dedicated IR function, other senior
executives might assume the IR role to the extent that they have the capacity, inclination, and expertise to do so. Thus, the
ultimate impact on activism of having a dedicated IR function to engage with investors is unclear.
To empirically capture the impact of a dedicated IR function, we need to consider that the decision to initiate an IR
program is a firm choice. As such, in our analyses, we use three estimation approaches to mitigate potential concerns of a
selection effect. First, where possible, we use firm fixed effects to control for any unobservable time-invariant firm factors that
may bias the estimated treatment effect. Second, we utilize entropy balancing, a data preprocessing method that is intended to
achieve covariate balance in empirical studies with binary treatment variables (Hainmueller 2012). We control for (and, for
entropy balanced estimation, achieve covariate balance on) firm size, market-to-book ratio, leverage, scaled earnings, earnings
volatility, and institutional ownership, as these factors have been shown to be related to the decision to hire an IR team (Kirk
and Vincent 2014; Bushee and Miller 2012) and may also be related to the likelihood or extent of activism. Third, we replicate
our main results using an alternate (and more restrictive) event-study approach in which we match firms initiating IR with
otherwise similar non-IR firms in the same year, industry, and size quintile on dynamic factors—sales growth, access to
external capital, and change in investor base.4 Finally, we demonstrate that our main result varies cross-sectionally with the
tenure of the IR officer, which provides evidence that it is dedicated IR (and not another distinct, but related, factor) that
contributes to the lower likelihood of activism.5
2
As Ernst & Young (2015) points out, ‘‘When companies engage with long-term institutional investors . . . those same investors are better positioned to
support the company in an activist situation . . . More companies are realizing that when company and long-term shareholder views are aligned, those
shareholders can be a tremendous ally for the company in an activist situation, including actively reaching out to other shareholders to argue in support
of management’s position.’’ The National Investor Relations Institute (NIRI 2016c) expressed similar sentiment when advising firms’ investor relations
officers (IROs) on dealing with activism, ‘‘Maintain a regular, robust shareholder communications program to create a base of sell-side analysts and
shareholders that understand your operations and strategy . . . This interaction will prove useful if and when an activist engagement turns negative and a
company needs shareholder support.’’ See Section II for additional discussion of engagement and the role of IR.
3
Tom Johnson, CEO of Abernathy MacGregor, states that ‘‘companies are finding it increasingly hard to get an audience with proxy voters even when a
determination is made to more proactively engage. This can be true for even large companies with market capitalizations in the billions’’ (Johnson
2017).
4
See the ‘‘Alternate Matching Techniques’’ subsection in Section V for a discussion of the potential trade-offs between our three estimation approaches.
5
Despite our robust empirical analyses, we acknowledge that firms initiating IR may be those that would have the greatest benefit of doing so, which
may limit the generalizability of our findings.
The Accounting Review

Volume 97, Number 2, 2022
Investor Relations, Engagement, and Shareholder Activism 79
Using a sample of firms from 2001 to 2016, we first examine how the presence of a dedicated IR function is associated
with firms’ vulnerability to activism. Overall dissatisfaction with the firm or management increases vulnerability, as activists
may perceive an easier path to sway other shareholders. Thus, we examine whether IR engagement is associated with investor
perceptions of management and the board, as proxied by approval rates on shareholder votes for board members (Fischer,
Gramlich, Miller, and White 2009). Consistent with IR engagement helping align investors with management, we observe
higher approval for engaged firms.
As argued above, IR engagement creates less fertile ground for activists to gain influence over firm shareholders. Perhaps
the most direct and observable method for an activist to exert control is through a takeover bid. Because activists rarely amass
enough shares to directly take over a firm, these takeover bids often rely on gaining the support of other shareholders. To the
extent that ongoing IR engagement helps maintain positive investor perceptions of management, activists may perceive a more
difficult path to gaining control, which reduces the likelihood of a takeover attempt. Consistent with IR engagement preventing
such attempts, we find that IR-engaged firms are significantly less likely to receive a tender offer.
While a takeover bid is an unambiguous and observable attempt to gain control, it may be too costly or not meet activists’
objectives. In such cases, activists may seek a subtler approach in which they take a large stake in the firm to persuade
shareholders to support their objectives. We find that although investors are no more or less likely to acquire large ownership
stakes (greater than 5 percent) in the firm, they are less likely to do so with the intent to exert influence or control over the
company if the firm has a dedicated IR function.
To further understand the impact of IR engagement on activism, we explore several cross-sectional predictions in which
the impact may be enhanced or attenuated. First, we examine the role of investor base concentration. Because IR engagement
often involves direct and personal interactions with investors, we expect it to be much more effective when there are fewer
shareholders with whom the firm must engage, particularly when these shareholders are financially sophisticated and
knowledgeable (i.e., a higher concentration of institutional investor ownership). Consistent with this intuition, we find that the
effect of IR engagement is more pronounced for firms with higher levels of institutional ownership.
Second, we examine the role of IR officer tenure. As discussed previously, research in social psychology and
organizational behavior suggests that interpersonal familiarity and rapport leads to increased mutual understanding and trust. If
IR engagement mitigates activism through this channel, then the effect should increase with a longer relationship (i.e., the
tenure of the IRO). Consistent with this intuition, we find that IRO tenure is associated with an incrementally lower likelihood
of being targeted by an activist. This test is useful for identification, as it links a characteristic of the IRO (as opposed to the
firm) to the likelihood of activism.
Finally, we explore the impact of firm performance. While our previous results are robust to various controls for historical
firm performance, we hypothesize that poor firm performance over the prior year makes it more difficult to sustain shareholder
confidence and loyalty, regardless of the firm’s commitment to IR engagement. In such cases, potential activists may perceive
weaker investor trust and confidence in management. Accordingly, we explore whether firm performance attenuates the effect
of IR engagement. We find that IR engagement is successful to a point, even when performance is somewhat poor, but it is not
effective when there is extremely poor performance.
We then examine how IR engagement can impact campaign tactics and outcomes once initiated by an activist. In
particular, we examine whether IR engagement results in milder activist tactics, such as shareholder proposals, as opposed to
more confrontational tactics, such as proxy fights, litigation, and vote no campaigns. Our intuition is that more confrontational
campaigns often require larger shareholder support and/or more severe changes to management, which may be less likely if the
firm has built and maintained a good relationship with investors. Consistent with this intuition, we find that, conditional on the
occurrence of an activist campaign, IR firms are less likely to face confrontational activist tactics. We also find that IR
engagement is associated with a lower likelihood of CEO turnover in the year after initiation of an activist campaign. Finally,
we find that when investors use the milder tactic of a shareholder proposal, IR firms have a higher likelihood of these proposals
being withdrawn before a vote occurs, consistent with IR engagement resolving shareholder concerns before they further
escalate and/or proxy proponents ultimately recognizing that the proposal has a lower-than-expected likelihood of success due
to the strength of the firms’ relationship with other investors.
While the empirical results strongly support our arguments that ongoing IR engagement with investors reduces the
likelihood and potential escalation of activism, it is important to highlight that we make no assumptions or judgements
regarding the ultimate value of activism to the firm. The appropriateness of activist tactics and their effectiveness in improving
firm performance have been subjects of debate among regulators, politicians, researchers, and various market participants for
many years. However, there is little debate about whether most managers and directors would welcome an activist investor. For
example, in a 2016 New York Stock Exchange (NYSE) survey of over 300 directors, over 80 percent of directors said that they
would not welcome an activist’s involvement with their board, that activism often creates a negative distraction to management,
and that activists are too focused on short-term performance (NYSE 2016). Our focus in this paper is on examining whether IR
engagement mitigates activism, regardless of its net benefits.

This study contributes to prior research along two major dimensions. First, it contributes to the literature on investor
activism. A number of prior studies have examined the determinants of investor activism and how it is associated with firm
value, performance, and governance.6 However, little is known about how a firm’s commitment to direct and ongoing
engagement with investors affects the likelihood or extent of activist intervention at the firm. Our study contributes to this
literature by showing how a firm’s commitment to IR engagement impacts (1) the likelihood of activism, and (2) the extent to
which an initiated activist campaign escalates toward more costly or contentious outcomes.
Second, we contribute broadly to the literature on interactions between managers, analysts, and investors7 and, more
specifically, to the literature on investor relations. The literature on investor relations has generally focused on the role of IR in
attracting visibility for the firm, as well as other capital market outcomes such as analyst following, earnings volatility,
liquidity, stock volatility, disclosure, and institutional ownership (Bushee and Miller 2012; Kirk and Vincent 2014; Chapman,
Miller, and White 2019).8 However, to our knowledge, the literature has not examined the role of IR in preventing or mitigating
investor activism. This question is especially relevant for IR, given that (1) activist tactics often hinge on their ability to
persuade other shareholders to shift support away from management, and (2) IR’s key role is largely intended to increase
mutual understanding and trust between managers and shareholders, which is crucial in garnering shareholder support.
II. INSTITUTIONAL BACKGROUND AND MOTIVATION
Evolution of Investor Activism

Tension between shareholders and managers has existed for as long as ownership and control have been separated in the
corporate form (Koppell 2011). As the U.S. emerged from World War II, U.S. public companies increasingly attracted capital
from a diverse range of investors. To compete for this investment capital, U.S. firms recognized the need for engagement with
investors (Knight 2010); however, this recognition may have come too slowly, as tension between firms and activists escalated
into the era of ‘‘corporate raiders’’ of the late 1970s and 1980s. These activists would often use borrowed funds to aggressively
buy a large stake in a public company in order to exert control (Fronda 2016). As a response to these aggressive activist tactics,
firms developed a number of defenses, including staggered boards, super-majority voting requirements, various methods of
share dilution (e.g., poison pills), greenmail, and substantial increases to the firm’s debt levels (Ruback 1987). These defensive
tactics are largely designed to thwart hostile takeover attempts, but are less effective in situations where shareholders may be
persuaded to support an activist’s objectives. While there have been waves of activism since the ‘‘corporate raider’’ era, they
have become less hostile (Klein and Zur 2009).
More recently, activism has involved such activities as publicly disclosed letters to management and/or other shareholders,
public presentations at investor conferences, and proxy fights (J.P. Morgan 2015), which generally rely on the activist winning
shareholder support, particularly that of institutional holders. The focus on large institutional shareholders is likely due to the
fact that (1) their increasingly concentrated ownership of U.S. public firms makes them less costly to engage than dispersed
retail investors, and (2) they are much more likely than retail investors to vote their shares (ProxyPulse 2016). In addition to
more concentrated ownership, social media and other emerging information technologies have allowed activists to engage with
other investors and market participants much more efficiently and effectively than in the past (Glaser 2008; Wessel 2011; Carr
2013). Finally, activists have been aided by recent regulations that are supportive of shareholder rights. The Dodd-Frank Wall
Street Reform and Consumer Protection Act contains numerous governance-related provisions, such as requiring shareholder
advisory votes about executive compensation and, under certain conditions, allowing shareholders to include their own board
nominees on the ballot in the proxy materials released to investors (Securities and Exchange Commission [SEC] 2010, 2011).
These provisions have not only allowed investors greater influence on important issues, but have also become a vehicle for
investors to express broader concerns about firms’ governance, performance, and strategy (Conference Board 2014).
6
See, e.g., Holderness and Sheehan 1985, Smith (1996), Brav, Jiang, Partnoy, and Thomas (2008), Becht, Franks, Mayer, and Rossi (2009), Greenwood
and Schor (2009), Klein and Zur (2009), and Gantchev (2013). Within this literature, we are aware of only two studies that attempt to capture private
two-way interaction between firms and shareholders. Carleton, Nelson, and Weisbach (1998) examine private negotiations between TIAA-CREF and
45 firms about governance issues between 1992 and 1996, and Becht et al. (2009) examine private discussions between a British activist fund and 41
firms between 1998 and 2004. These studies focus on how the market responds to managerial actions taken in response to a single activist’s demands.
7
See, e.g., Bushee, Jung, and Miller (2017), Green, Jame, Markov, and Subasi (2014), Soltes (2014), Brown, Call, Clement, and Sharp (2015, 2016),
Solomon and Soltes (2015), Kirk and Markov (2016), Karolyi, Kim, and Liao (2017), and Chapman et al. (2019). We thank a reviewer for highlighting
the implications of our study for this broader literature.
8
The capital market outcomes of IR that are studied in prior literature may have varying effects on activism, the direction of which may be unclear ex
ante. To address these potentially varying effects on activism and ensure that our results do not simply capture a natural extension of these previously
documented capital market outcomes, we control for these factors via regression controls or matching.

Investor Relations Engagement and Implications for Activism

As discussed earlier, abundant survey and anecdotal evidence suggests that managers and directors have strong preferences
to resist activist investors. As activists have increasingly sought to win shareholder support, practitioners have increasingly
pushed for firms to engage in direct two-way dialog with shareholders on an ongoing basis (Ernst & Young 2015; J.P. Morgan
2015; PricewaterhouseCoopers [PwC] 2015; NIRI 2016a). The skill set needed to understand the informational needs of
specific investors and to effectively fulfill those needs through direct dialog is reflected in the definition of investor relations
provided by the National Investor Relations Institute (NIRI 2003):
Investor relations is a strategic management responsibility that integrates finance, communication, marketing and
securities law compliance to enable the most effective two-way communication between a company, the financial
community, and other constituencies.
IR engagement is a potent defense against recent activist tactics because it is intended to improve alignment with investors,
increase their confidence and trust in management, and strengthen their support for managers’ strategic agenda. This unique
role of IR engagement in deterring activism is explicitly emphasized in the following observation by Deloitte (2015):
Efforts to address shareholder activism are most productive when they are viewed and conducted in the context of a
robust IR engagement program, usually found within the company’s investor relations department. Strong IR
engagement enables management to understand the company’s shareholder constituencies and their goals, monitor
changes in the makeup of the shareholder base, communicate short- and long-term strategies effectively, and cultivate
both reliable supporters and trusted critics in that base.
While companies can engage with investors in innumerable ways (e.g., phone call with the CEO, meeting with the CFO at
an investor conference, plant or headquarters visit with other managers), a dedicated IR function transcends disparate channels
of engagement, as it signals to investors that the firm has made a credible and comprehensive commitment of resources to
engagement. A dedicated investor relations function is managed by an IRO, who is a senior manager that serves as the firm’s
primary point of contact and facilitates ongoing investor outreach and two-way dialog with the market. IROs spend significant
time interacting with investors and other market participants and creating a strategy to target the efforts of the C-level
executives so as to maximize the benefits of their IR efforts.9 In the absence of a dedicated IR program, other senior managers
(e.g., CFO or CEO) would have to create a comprehensive program that details when to engage with investors, how to identify
prospective new investors, and manage the consistent day-to-day communications with both investors and analysts. This
imposes significant time constraints on managers, given their many other important responsibilities. Thus, having an IR
function at the firm creates a level of engagement that far surpasses that of a CEO or CFO attempting to manage investor
relations as just a portion of their overall job. Additionally, as described by Chapman et al. (2019), effective shareholder
engagement requires specialized training and experience to answer investors’ questions while avoiding communications that
potentially violate disclosure regulations (i.e., Regulation Fair Disclosure [Reg FD]). Other managers may, therefore, de-
prioritize shareholder engagement due to risk aversion or an aversion to the highly social and time-consuming nature of one-on-
one investor interactions.
Because IROs meet regularly with members of the management team, they are in a unique position to have a
comprehensive understanding of the firm, its strategy, and information environment, which allows them to develop and
coordinate managers’ views into a clear and consistent narrative that can be cohesively communicated to the market across
multiple communication venues. This provides managers and the IRO with a unified message for use in their direct
communications with investors and other market participants. Given constraints on investors’ time and attention, a single
consistent message is imperative for the firm to increase alignment with investors and eventually gain investor support for their
strategy. Thus, effective IROs integrate technical and financial expertise, a detailed understanding of the firm, and specialized
communication skills to craft an overarching narrative, all while adhering to a high standard of regulatory compliance.
Relationships with investors are established and developed over time, through interactions in various venues, including post-
earnings private calls, face-to-face meetings at investor conferences, company-hosted investor and analyst days, individual
office and facility visits by investors, company-hosted non-deal road shows, etc.
All of these actions are critically important for maintaining the investor relationships that are fundamental to preventing
and mitigating activism. For example, Ernst & Young (2015) included the following in a summary of conversations with 50
institutional investors, investor associations, and advisors about governance and activism:
9
According to a 2005 National Investor Relations Institute study, IR departments spend 83 percent of their time, on average, interacting with analysts
and institutional investors (NIRI 2005).

When companies engage with long-term institutional investors . . . those same investors are better positioned to
support the company in an activist situation . . . More companies are realizing that when company and long-term
shareholder views are aligned, those shareholders can be a tremendous ally for the company in an activist situation,
including actively reaching out to other shareholders to argue in support of management’s position.
The development of trust and confidence developed through these interactions is further highlighted in the views of
Kingsdale Advisors, a prominent shareholder advisory firm, in an article on the Harvard Law School Forum on Corporate
Governance and Financial Regulation:
When you hear the phrase ‘‘shareholder engagement’’ we want you to think ‘‘shareholder trust.’’ Gaining the trust of
your shareholders doesn’t happen overnight. It grows slowly through an ongoing commitment to transparency and
openness . . . [it] is an approach that requires an ongoing, give and take dialogue with shareholders and is designed to
endure for the long term . . . It’s about taking the proactive steps today to ensure the company’s relationship with
shareholders is healthy and sustainable for the long term. (Kingsdale Advisors 2019)
Investor trust and confidence in the IRO, in particular, can be instrumental in deterring and mitigating the effects of
activism, yet specific examples of this deterrent effect may not be widely reported, as they are known only by firm insiders and
advisers. For example, Wachtell, Lipton, Rosen & Katz (2019), a well-respected Manhattan law firm that specializes in
shareholder and corporate law, has observed that ‘‘the investor relations officer is critical in assessing exposure to an activist
attack and in a proxy solicitation. The credibility the investor relations officer has with the institutional shareholders has been
determinative in a number of proxy solicitations.’’
Prior research supports the observation that investors and other market participants value private dialog with managers,
often even more than public firm disclosures, such as earnings guidance, conference calls, and financial reports.10 This research
suggests that personal interactions and two-way communication are especially effective for mitigating information asymmetry
and improving alignment between managers and investors.11
Taken together, the above discussion highlights a number of objectives that a dedicated IR function is uniquely positioned to
fulfill in a firm’s efforts to combat activism: (1) facilitate ongoing two-way dialog, (2) communicate a clear and consistent
narrative, (3) build relationships with investors, (4) gain investor support for the firm’s strategy, and (5) build investor confidence
in management.12 Although it is often difficult to infer intent behind firms’ actions, we can observe their stated objectives and
expectations in public job listings for IR professionals, which almost universally discuss the objectives listed above. For example,
a recent job listing for an IR professional at HP Inc. includes the following in the job description (HP Inc. 2019):
Manages relationships with sell-side analysts and institutional investors through quarterly earnings cycles and various
marketing activities including non-deal roadshows, bus tours, and financial conferences
Develop and execute global investor outreach plan
Gain investor support for the strategy and tactics of the company
Engage HP’s executive management team in investor outreach activities to provide investor confidence in leadership
The content of IR job listings strongly reinforces the idea that firms expect a dedicated IR function to facilitate and manage
the firm’s direct communication with the investment community to maintain relationships, which can provide them with the
investor support needed to combat activism in the future.
III. RESEARCH DESIGN, DATA, AND SAMPLE SELECTION
Measuring IR Engagement and Research Design

We operationalize IR engagement by using the presence of an in-house IRO on the firm’s earnings conference call as a
proxy for a dedicated IR function (Chapman et al. 2019). The IRO’s presence on the call is an important and meaningful
10
See, for example, Bushee et al. (2017), Green et al. (2014), Soltes (2014), Brown et al. (2015, 2016), Solomon and Soltes (2015), Kirk and Markov
(2016), Karolyi et al. (2017), and Chapman et al. (2019).
11
Despite their idiosyncratic nature and value to investors, private dialog does not necessarily violate securities regulations, such as Regulation Fair
Disclosure (Reg FD). Interpretative guidelines published by the SEC regarding Reg FD allow for private communications related to clarification and
synthetization of information, so long as firms do not release any nonpublic material information (SEC 2000).
12
As described in Chapman et al. (2019), there are several reasons why some firms choose not to have an IR program, despite its benefits. IR programs
have significant monetary costs of up to multiple millions of dollars per year (NIRI 2016b). Non-monetary costs include more time spent by senior
managers and increased Reg FD risk with more frequent private communications. Additionally, setting a precedent of more transparency through an IR
program may be costly to the extent that reducing transparency in the future may be a negative signal to the market. Last, the benefits of IR can be
difficult to quantify, which complicates a reliable cost/beneficial analysis to warrant having an IR program.

indicator of a dedicated IR function (as opposed to an ad hoc or intermittent function), which is crucial for establishing and
maintaining direct, ongoing engagement with shareholders.
To conduct our analyses, we use three estimation approaches. First, where possible, we use firm fixed effects to control for
unobservable time-invariant firm factors that may bias the estimated treatment effect. Second, we utilize entropy balancing, a
data preprocessing method that is intended to achieve covariate balance in empirical studies with binary treatment variables
(Hainmueller 2012).13 Third, as an additional analysis in Section V, we replicate our main results using an alternate (and more
restrictive) event-study approach in which we match firms initiating IR with otherwise similar non-IR firms in the same year,
industry, and size quintile on dynamic factors—sales growth, access to external capital, and change in investor base.
Data and Sample Selection

We follow Chapman et al. (2019) in identifying IR officers from earnings conference call transcripts between 2002 and
2016, excluding titles of non-IR managers, inferring missing observations when the same IR officer is observed in surrounding
quarters, requiring at least one year of IR officer tenure, and excluding external IR consultants. Table 1 summarizes the sample
selection criteria. We collect data on director elections and auditor ratifications from ISS. We extract data from SEC filings
related to potential activist ownership, passive ownership, and tender offers from the SEC’s EDGAR repository (on Forms
13D, 13G, and TO, respectively). We use the ‘‘subject CIK’’ field in investor-provided SEC filings to identify the relevant
Compustat firm for each filing. We collect data on activist campaigns from Capital IQ, various financial statement items from
Compustat, measures of returns and liquidity from CRSP, the provision of management forecasts from the I/B/E/S management
forecast database, the frequency of 8-K filings from EDGAR, and the level of institutional ownership from Thomson.
Table 2 provides descriptive statistics and definitions of variables used in our analyses. Panel A of Table 2 provides
descriptive statistics on the director and auditor vote sample used in Table 3, consisting of 142,497 (23,464) director elections
(auditor ratifications) for which data are available from the Institutional Shareholder Services (ISS) database.14 Approximately
37 percent (35 percent) of the observations in the director election sample (auditor ratification sample) have IR officers with a
minimum tenure of one year (IR Engagement). Consistent with prior literature (Fischer et al. 2009), directors in this sample are
elected with high levels of investor support (InvPerception).
Panel B of Table 2 provides descriptive statistics on the main sample used in empirical analyses in Tables 4–8 and 10,
which consists of 322,663 firm-quarters between 2001 and 2016 (inclusive) for which data are available to calculate the
required variables. Approximately 20 percent of these observations have IR officers with a minimum tenure of one year (IR
Engagement). Active ownership filings are present in only 3.4 percent of these firm-quarters (Activism), while passive
ownership filings exist in 18 percent of firm-quarters (5% Ownership).
Panel C of Table 2 provides descriptive statistics on the subset of the primary sample consisting of 921 firm-quarters in
which a formal activist campaign was launched. The number of observations in this sample (1,877) is higher than the number
of firm-quarters because Capital IQ captures data about each activist campaign at the initiative level, and campaigns often
consist of multiple initiatives. Each of these ‘‘initiatives’’ is captured separately in Capital IQ and categorized by objective and
method. Approximately 30 percent of these observations have IROs with a minimum tenure of one year (IR Engagement).
Activist campaign initiatives involve confrontational methods (Contentious) about half of the time.
Panel D of Table 2 presents the mean and variance of the variables used in the entropy balancing algorithm before and after
the implementation of the algorithm. After the algorithm is complete, the mean and variance of the covariates are nearly
identical across the treatment (IR Engagement ¼ 1) and control (IR Engagement ¼ 0) observations.15 This accomplishes the
13
Entropy balancing assigns continuous weights for control observations such that the mean and variance of the resulting control group matches that of the
treatment group across specified covariates (i.e., covariate balance is achieved). Two benefits of this approach are (1) it permits less researcher discretion
than the more commonly used method of propensity score matching, with respect to such choices as the closeness of the match and the number of control
firms to match for each treatment (McMullin and Schonberger 2017), and (2) it retains valuable information in the control group by allowing the unit
weights to vary smoothly across units (Hainmueller 2012). Ho, Imai, King, and Stuart (2007) point out that ‘‘matching does not require pairing
observations . . . only the distributions need be matched as closely as possible.’’ Preprocessing the data to accomplish this distributional matching can be
done in any number of ways without introducing bias into our estimates, so long as the method is a function of the explanatory variables—i.e., there is no
selection on the dependent variable (Ho et al. 2007). Prior research suggests that entropy balancing provides the most direct method for distributional
matching (i.e., covariate balance), which translates into lower approximation error and reduced model dependency (Hainmueller 2012).
14
We match ISS to Compustat by requiring the annual meeting date in ISS to be between zero and 150 days after the fourth-quarter earnings
announcement date in Compustat. The sample of director elections also excludes elections of directors observed only once across the entire sample in
order to include director fixed effects in subsequent analyses.
15
We achieve covariate balance along the following dimensions: firm size, market-to-book ratio, leverage, scaled earnings, earnings volatility, and institutional
ownership, as they have been shown to be related to the IR hiring decision (Kirk and Vincent 2014; Bushee and Miller 2012). In a later robustness test, we
employ an alternate (and more restrictive) approach in which we match firms initiating IR with otherwise similar non-IR firms in the same year, industry, and
size quintile on dynamic factors—sales growth, access to external capital, and change in investor base. Results of our main analyses are robust to this matching
technique (see the ‘‘Alternate Matching Techniques’’ subsection for further discussion of this alternate matching approach and the results of this analysis).

TABLE 1
Sample Selection
n Used In
Director and Auditor Vote Sample
Unique observations of director elections in the ISS Company Vote Results database between 2003 198,065
and 2014, inclusive
Less: elections lacking sufficient data in Compustat, CRSP, or I/B/E/S for the computation of 55,568
control variables, elections of directors observed only once, and elections in which the meeting
date is more than 150 days following the fourth-quarter earnings announcement date
Subsample used in empirical tests of director support 142,497 Table 3, Panel A
Firm-year observations from Table 3, Panel A for which auditor ratification data are available 23,464 Table 3, Panel B
Main Sample
Firm-quarter observations in the Compustat quarterly database with earnings announcement dates 567,752
between 2001 and 2016, inclusive
Less: observations lacking sufficient data in Compustat, CRSP, or I/B/E/S for the computation of 245,089
control variables
Largest sample used in empirical analysis 322,663 Tables 4, 5, 7a, and 8
Subsample of firm-quarters with institutional ownership . 0 percent 310,456 Table 6
Subsample of firm-quarters for which shareholder proposal data are available 297,193 Table 10
Within-Activist Campaign Sample
Number of activist campaign initiatives identified by the Capital IQ Company Screening Report 4,657
between 2001 and 2016, inclusive (from a total of 2,032 activist campaigns)
Less: activist campaign initiatives from private firms, firms not included in Compustat, or 2,778
otherwise lacking sufficient data for the computation of control variables
Sample of activist campaign initiatives used in within-campaign empirical analyses 1,877 Table 9, Panel A
Subsample of activist campaign initiatives for which CEO Turnover can be calculated using data 790 Table 9, Panel B
from Execucomp
IR Initiations Sample
Number of firms initiating a dedicated IR program. Identified as the beginning of consistent 997
participation on conference calls by an IR officer among firms with at least three previous and
subsequent years of available conference call transcripts
Observations from Main Sample of three years before and after IR initiation and non-initiation 25,099 Table 11, Panel B
firms matched in the same year and industry with the same decile ranks of sales growth, access
to capital and change in investor base
Subsample for which auditor voting data are available 2,489 Table 11, Panel A
Subsample for which director voting data are available 15,206 Table 11, Panel A
a
Designates the largest sample used in the table.
Table 1 describes how the samples are constructed, including the number of observations (n) and the tables in which the samples are used. Some results
have fewer observations because of sample restrictions described in the table notes.
objective discussed in the previous section, that ‘‘matching does not require pairing observations . . . only the distributions need
be matched as closely as possible’’ (Ho et al. 2007; emphasis in the original).
IV. EMPIRICAL ANALYSES

Our first empirical test examines how IR engagement is associated with shareholders’ overall perception of managers and
directors. We then examine whether IR engagement reduces the likelihood of activism at the firm, including settings in which it
may have a stronger or weaker influence on activism. Finally, we examine whether, conditional on an activist campaign, IR
engagement can impact the confrontational nature of the campaign.
IR Engagement and Shareholder Perceptions of Management and the Board

Managing shareholder perceptions and maintaining their support is an important objective of IR engagement, particularly
with respect to preventing investor activism (Sullivan & Cromwell 2016; J.P. Morgan 2015). As a proxy for shareholder
perception, we use the approval rate of votes for seats on the firm’s board of directors, as prior research suggests that director
vote tallies serve as informative polls of investor perceptions regarding board performance and predict CEO and board turnover

TABLE 2
Descriptive Statistics
Panel A: Director and Auditor Vote Sample Variables (Used in Table 3)

Variables n Mean 1st quartile Median 3rd quartile SD
Dependent Variables
InvPerception 142,497 0.956 0.955 0.982 0.994 0.076
AuditorSupport 23,464 0.982 0.981 0.991 0.996 0.042
Independent Variables—Director Vote Sample (Table 3, Panel A)
IR Engagement 142,497 0.374 0 0 1 0.484
LnMVE 142,497 7.427 6.151 7.219 8.482 1.684
MB 142,497 2.737 1.296 2.000 3.235 3.481
Prior12MonthReturn 142,497 0.011 0.215 0.025 0.178 0.399
ROA 142,497 0.515 0.014 0.095 0.453 1.185
InstOwnership 142,497 0.575 0.298 0.678 0.873 0.351
NumPressReleases 142,497 2.935 2.773 3.135 3.434 0.906
Analysts 142,497 1.812 1.099 1.946 2.639 1.031
Forecasts 142,497 1.469 0.000 0.000 3.045 1.678
Independent Variables—Auditor Vote Sample (Table 3, Panel B)
IR Engagement 23,464 0.351 0 0 1 0.477
LnMVE 23,464 7.175 5.999 6.990 8.156 1.569
MB 23,464 2.876 1.298 2.040 3.409 3.940
ROA 23,464 0.582 0.017 0.126 0.595 1.247
InstOwnership 23,464 0.580 0.306 0.684 0.879 0.353
Analysts 23,464 1.771 1.099 1.946 2.565 1.010
Forecasts 23,464 1.512 0.000 0.000 3.135 1.690
Panel A provides descriptive statistics for the sample used in Table 3. Continuous variables are winsorized at 1 percent and 99 percent. Percentage
variables are constrained between 0 and 1.
Variable Definitions:
InvPerception ¼ the percentage of votes in favor of the director on the shareholder ballot;
AuditorSupport ¼ the percentage of votes in favor of the firm’s choice of auditor;
IR Engagement ¼ an indicator variable set equal to 1 for firm-years in which we observe an IR officer in place for at least one year, and 0 otherwise;
LnMVE ¼ the natural log of the firm’s market capitalization;
MB ¼ the firm’s market value of equity scaled by the book value of equity;
Prior12MonthReturn ¼ the firm’s industry-adjusted stock return over the preceding year;
ROA ¼ the firm’s industry-adjusted ROA (net income before extraordinary items divided by total assets) for the most recent quarter;
InstOwnership ¼ the percentage of the firm’s shares held by institutional investors;
NumPressReleases ¼ the natural log of 1 plus the number of 8-Ks filed with the SEC over the preceding eight quarters, ending with quarter t–1;
Analysts ¼ the natural log of 1 plus the number of analysts covering the firm; and
Forecasts ¼ the natural log of 1 plus the number of earnings and sales forecasts issued by the firm over the preceding eight quarters, ending with quarter t–1.
(continued on next page)
(Fischer et al. 2009). To examine the relation between IR engagement and perceptions of management and board performance,
we estimate the following regression:
InvPerceptionitj ¼ b0 þ b1 IR Engagementit þ Controlsit þ eit ð1Þ
where InvPerception is the percentage of votes in favor of director j on the ballot for firm i in year t, and IR Engagement is an
indicator variable set equal to 1 for firm-years in which we observe an IR officer in place for at least one year. Controls is a vector
of control variables intended to absorb variation in shareholder votes that may be attributable to general board and manager
performance. Our control variables also ensure that our results do not simply capture a natural extension of previously
documented capital market outcomes related to IR.16 LnMVE is the natural log of the firm’s market capitalization and is intended
16
Prior research has shown that IR impacts analyst following, earnings volatility, liquidity, stock volatility, disclosure, and institutional ownership (e.g.,
Bushee and Miller 2012; Kirk and Vincent 2014; Chapman et al. 2019).

TABLE 2 (continued)
Panel B: Likelihood of Investor Activism Sample Variables (Used in Tables 4–8 and 10)
Dependent Variables
TenderOffer 322,663 0.010 0 0 0 0.101
Activism 322,663 0.034 0 0 0 0.182
5% Ownership 322,663 0.180 0 0 0 0.384
Independent Variables
IR Engagement 322,663 0.199 0 0 0 0.399
LnMVE 322,663 6.013 4.443 5.965 7.482 2.150
MB 322,663 2.628 1.062 1.764 3.085 6.648
ROA 322,663 0.406 0.009 0.101 0.352 1.175
InstOwnership 322,663 0.461 0.138 0.451 0.762 0.332
Analysts 322,663 1.001 0.000 0.693 1.946 1.072
Forecasts 322,663 0.871 0.000 0.000 1.946 1.432
Cash&Equiv 322,663 0.191 0.030 0.091 0.268 0.230
Liquidity 322,663 0.011 0.006 0.009 0.014 0.007
Panel B provides descriptive statistics for the sample used in Tables 4–8 and 10. Continuous variables are winsorized at 1 percent and 99 percent.
Percentage variables are constrained between 0 and 1.
TenderOffer ¼ an indicator equal to 1 if the firm’s shareholders receive a tender offer during the quarter, and 0 otherwise;
Activism ¼ an indicator equal to 1 if an investor in the firm files a Form 13D (indicating 5 percent ownership in the firm and an intent to influence
management) during the quarter, and 0 otherwise;
5 % Ownership ¼ an indicator equal to 1 if an investor in the firm files a Form 13G (indicating 5 percent ownership in the firm, but no intent to influence
IR Engagement ¼ an indicator variable set equal to 1 for firm-quarters in which we observe an IR officer in place for at least one year, and 0 otherwise;
NumPressReleases ¼ the natural log of 1 plus the number of 8-Ks filed with the SEC over the preceding eight quarters, ending with quarter t1;
Analysts ¼ the natural log of 1 plus the number of analysts covering the firm;
Forecasts ¼ the natural log of 1 plus the number of earnings and sales forecasts issued by the firm over the preceding eight quarters, ending with quarter
t1;
Cash&Equiv ¼ the amount of cash and equivalents scaled by total assets; and
Liquidity ¼ the average bid-ask spread over the preceding quarter.
to control for the effect that firm size and visibility may have on voting outcomes. MB is the market-to-book ratio and is intended
to control for the potential impact of over- or under-valuation on voting outcomes. Prior12MonthReturn and ROA are intended to
control for the effect of firm performance on voting outcomes, where Prior12MonthReturn is the firm’s industry-adjusted stock
return over the preceding year as of the most recent quarter, and ROA is the firm’s industry-adjusted ROA (net income before
extraordinary items scaled by total assets) for the most recent quarter. InstOwnership is the percentage of shares held by
institutional investors and is intended to control for the voting habits of institutional versus retail investors, as well as the degree of
external monitoring. NumPressReleases and Forecasts are intended to control for the level of public disclosure, as this is distinct
from the interactive form of IR engagement captured in our variable of interest (IR Engagement). NumPressReleases (Forecasts)
is the natural log of 1 plus the number of 8-Ks (earnings and sales forecasts) that the firm released over the preceding eight
quarters, ending in quarter t–1. We also control for analyst coverage (Analysts), measured as the natural log of 1 plus the number
of analysts covering the firm. Year fixed effects are included in all regressions to control for systematic influences that may affect
all firms in a given time period. To control for the effect of voting recommendations from Institutional Shareholder Services (ISS),
we also include fixed effects for the different classes of recommendations (For, Against, Do Not Vote, Withhold). Finally, we
include firm and director fixed effects. To the extent that IR engagement enables firms to manage shareholder perceptions and

TABLE 2 (continued)
Panel C: Escalation of Activist Campaigns Sample Variables (Used in Table 9)
Dependent Variables
Contentious 1,877 0.546 0 1 1 0.498
CEOTurnover 790 0.201 0 0 0 0.403
Independent Variables
IR Engagement 1,877 0.304 0 0 1 0.460
Num Initiatives 1,877 3.469 2.000 3.000 4.000 1.929
LnMVE 1,877 6.306 4.500 6.095 7.801 2.277
MB 1,877 2.444 0.908 1.476 2.576 3.806
ROA 1,877 0.493 0.004 0.132 0.462 1.355
InstOwnership 1,877 0.527 0.229 0.581 0.806 0.326
Analysts 1,877 0.694 0.000 0.000 1.386 1.097
Forecasts 1,877 1.067 0.000 0.000 2.398 1.574
Cash&Equiv 1,877 0.183 0.036 0.095 0.241 0.216
Liquidity 1,877 0.009 0.006 0.008 0.012 0.005
Panel C provides descriptive statistics for the sample used in Table 9. Continuous variables are winsorized at 1 percent and 99 percent. Percentage
variables are constrained between 0 and 1.
Contentious ¼ an indicator equal to 1 if the campaign involves a proxy threat, proxy fight, lawsuit threat, legal action, or vote no campaign, and 0
otherwise;
CEOTurnover ¼ an indicator equal to 1 if the CEO left the firm in the year after an activist campaign begins, and 0 otherwise;
Num Initiatives ¼ the number of initiatives within the activist campaign;
t1;
maintain their support, we expect a positive coefficient estimate on IR Engagement (b1 . 0) in Equation (1), indicating higher (on
average) shareholder support for directors of firms with IR engagement.
Column (1) of Table 3, Panel A reports the results of estimating Equation (1) without entropy balancing. Consistent with
our prediction, the coefficient estimate for b1 is positive (significant at the 5 percent level). Column (2) reports the results with
entropy balancing. Consistent with our prediction, the coefficient estimate for b1 is positive (significant at the 10 percent level).
It is important to note that there is generally little variation in director approval rates (only 1.2 percent separates the median firm
from the 75th percentile), and even small variations in voting outcomes can be informative about investor perceptions. For
example, Fischer et al. (2009) find that a 1 percent decline in a board approval vote is associated with a nearly 100 percent
increase in the likelihood of forced CEO turnover. Thus, we interpret the economic magnitude of IR Engagement in Table 3
based on the relative percentage of the standard deviation of InvPerception explained by IR Engagement. The coefficient
estimate of 0.003 in Column (1) and the standard deviation of InvPerception of 0.076 suggest that approximately 4 percent of
the standard deviation in voting outcomes is explained by IR Engagement. Considering the economic effects associated with
seemingly small variation in director votes in prior studies, these results support the inference that dedicated IR engagement is
associated with meaningfully higher investor perceptions of management and the board.
To provide assurance that the presence of an IR function is not simply a proxy for unconditionally higher shareholder
voting support on all items, we include a placebo test in Table 3, Panel B. This test replaces director vote approval with auditor
vote approval (AuditorSupport) as the dependent variable in Equation (1). Auditor approval should be largely unrelated to

TABLE 2 (continued)
Panel D: Pre- and Post-Entropy Balancing Distributional Properties (Used in Tables 4 and 5)
Mean Variance
Dedicated Dedicated Dedicated Dedicated
Engagement Engagement Engagement Engagement
Variables ¼1 ¼0 Difference ¼1 ¼0 Difference
Pre-Entropy Balancing
Size 7.867 5.981 1.885*** 3.607 4.433 0.826***
MB 2.917 2.556 0.361*** 46.443 43.604 2.840***
Leverage 3.460 3.754 0.294*** 28.523 32.047 3.523***
ScaledEarnings 0.006 0.036 0.030*** 0.017 0.048 0.032***
EarningsVolatility 0.021 0.047 0.026*** 0.004 0.078 0.074***
InstOwnership 0.657 0.412 0.245*** 0.086 0.104 0.018***
Post-Entropy Balancing
Size 7.867 7.867 0.000 3.607 3.607 0.000
MB 2.917 2.917 0.000 46.445 46.443 0.002
Leverage 3.460 3.460 0.000 28.523 28.523 0.000
ScaledEarnings 0.006 0.006 0.000 0.017 0.017 0.000
EarningsVolatility 0.021 0.021 0.000 0.005 0.004 0.001
InstOwnership 0.657 0.657 0.000 0.086 0.086 0.000
*, **, *** Represent significance at 10 percent, 5 percent, and 1 percent, respectively, using a t-test (F-test) for the difference in means (variances).
Panel D presents the mean and variance of the six variables used in the entropy balancing algorithm (Size, MB, Leverage, ScaledEarnings,
EarningsVolatility, and InstOwnership). The first (last) six rows present the mean, variance, and difference before (after) the entropy balancing algorithm
is completed. The sample consists of the 322,663 observations described in Panel B.
Size ¼ the log of total assets;
Leverage ¼ total assets divided by the book value of equity;
ScaledEarnings ¼ earnings before unusual items scaled by the market value of equity;
EarningsVolatility ¼ the standard deviation of quarterly earnings scaled by the market value of equity over the prior eight quarters; and
InstOwnership ¼ the percentage of the firm’s shares held by institutional investors.
shareholder perceptions of management and the board, so we would not expect a statistically significant relation between
auditor approval and IR engagement. Indeed, the coefficient on IR Engagement in Table 3, Panel B is not statistically
significant in either model (t-statistics of 0.89 and 1.24, respectively). In summary, the findings in Table 3 are consistent
with our prediction that IR engagement is associated with higher perceptions of management and the board. This not only
provides validation of our proxy for IR engagement, but also provides evidence for an important mechanism by which IR
engagement mitigates the likelihood and escalation of investor activism, namely, that management has established greater
goodwill and alignment with investors that can be used to combat activist influence.
IR Engagement and the Likelihood of Activism

We next examine how IR engagement impacts the likelihood of activism at the firm. As discussed more fully in the
subsection ‘‘Investor Relations Engagement and Implications for Activism,’’ engagement should decrease the likelihood of
activism, as firms develop a greater mutual understanding and trust with investors. We first test the effect of IR engagement on
the likelihood of a tender offer by estimating the following regression:
TenderOfferit ¼ b0 þ b1 IR Engagementit þ Controlsit þ eit ð2Þ
where TenderOffer is an indicator equal to 1 if an investor in firm i filed a Form TO (indicating receipt of a takeover bid) in
quarter t, and 0 otherwise, and IR Engagement is an indicator variable equal to 1 for firm-quarters in which we observe an IR
officer in place for at least one year. Controls is a vector of control variables intended to control for other factors that may
increase the likelihood of investors receiving a takeover bid: LnMVE, MB, Prior12MonthReturn, ROA, InstOwnership,
NumPressReleases, Analysts, and Forecasts, as defined previously. LnMVE is intended to control for the effect that firm size
and visibility may have on the likelihood of receiving a tender offer. MB is intended to control for over- or under-valuation, as

TABLE 3
IR Engagement and Investor Perceptions of Management and the Board
Panel A: IR Engagement and Investor Perceptions of Management and the Board

Dependent Variable ¼ InvPerception
Variable Prediction (1) (2)
IR Engagement þ 0.003** 0.002*
(2.31) (1.68)
LnMVE þ/ 0.004*** 0.004***
(3.68) (3.42)
MB þ/ 0.000 0.000
(0.05) (1.30)
Prior12MonthReturn þ 0.003*** 0.003***
(2.90) (2.58)
ROA þ 0.000 0.000
(0.93) (0.26)
InstOwnership þ/ 0.014*** 0.009***
(4.77) (2.74)
NumPressReleases þ/ 0.004*** 0.004***
(4.90) (4.23)
Analysts þ/ 0.002** 0.002*
(2.05) (1.74)
Forecasts þ/ 0.001 0.000
(1.42) (0.22)
Entropy Balanced Control Group No Yes
Firm and Director Fixed Effects Yes Yes
Industry Fixed Effects No Yes
Year Fixed Effects Yes Yes
ISS Recommendation Fixed Effects Yes Yes
Observations 142,497 142,497
R2 0.652 0.668
*, **, *** Represent significance at 10 percent, 5 percent, and 1 percent, respectively.
Panel A examines the relation between IR engagement and perceptions of management and the board, as described in Equation (1). Standard errors are
clustered by firm; t-statistics are in parentheses.
t1.
prior research suggests that this may influence the likelihood of a takeover bid or other potential activist actions (Greenwood
and Schor 2009). Prior12MonthReturn and ROA are intended to control for firm performance, as prior research suggests that
this may influence the likelihood of a takeover bid or other potential activist actions.17 Analysts is intended to control for the
degree of external monitoring and the firm’s information environment. Forecasts controls for the potential impact of
17
See Gordon and Pound (1993), Bethel, Liebeskind, and Opler (1998), Becht et al. (2009), and Klein and Zur (2009).

TABLE 3 (continued)
Panel B: Auditor Approval Vote Placebo Analysis
Dependent Variable ¼ AuditorSupport
IR Engagement þ/ 0.001 0.001
(0.89) (1.24)
LnMVE þ/ 0.001 0.001
(1.58) (1.26)
MB þ/ 0.000 0.000
(0.61) (0.03)
Prior12MonthReturn þ/ 0.001 0.001
(1.61) (0.67)
ROA þ/ 0.000 0.000
(0.84) (0.59)
InstOwnership þ/ 0.000 0.001
(0.02) (0.46)
NumPressReleases þ/ 0.002** 0.001
(1.97) (1.21)
Analysts þ/ 0.000 0.000
(0.54) (0.16)
(0.32) (0.81)
Firm Fixed Effects Yes Yes
ISS Recommendation Fixed Effects Yes Yes
R2 0.360 0.357
Panel B presents the results of a placebo test of the relation between IR engagement and shareholder votes of auditor approval. Standard errors are
clustered by firm; t-statistics are in parentheses.
t1.
management forecasts on the likelihood of activism.18 Finally, we include two additional variables that prior research has
shown to be associated with activism: Cash&Equiv is the level of cash and equivalents, scaled by total assets, and Liquidity is
the average bid-ask spread, which we measure in quarter t–1 in order to avoid the potentially confounding effect of changes in
18
Several recent papers examine the relation between investor activism and management guidance. Chen and Jung (2016) find that an increase in activist
ownership in a firm is associated with less frequent and precise financial guidance. Khurana, Li, and Wang (2018) also find that activist ownership is
associated with less frequent financial guidance, with this result being attributable to less frequent bad news guidance. In contrast, Bourveau and
Schoenfeld (2017) find that the threat of activism is associated with more frequent and precise financial guidance, and that this increase in guidance
(approximately one to two additional forecasts per year) is associated with a lower likelihood of threatened firms actually experiencing investor
activism. Because our paper examines dedicated IR engagement, a construct that is distinct from public disclosure, our findings do little to resolve these
seemingly conflicting findings; however, we control for the number of management forecasts in order to rule out the possibility that our measure of IR
engagement somehow captures variation in management guidance.

TABLE 4
IR Engagement and Takeover Attempts
Dependent Variable ¼ TenderOffer
IR Engagement 0.004*** 0.002***
(5.01) (3.16)
LnMVE 0.003*** 0.001***
(7.03) (3.16)
MB 0.000** 0.000**
(1.86) (2.23)
Prior12MonthReturn 0.002*** 0.005***
(5.21) (6.44)
ROA 0.000 0.000
(0.28) (0.45)
(1.20) (0.71)
(3.25) (9.02)
Analysts þ/ 0.000 0.001
(0.78) (1.13)
Forecasts þ/ 0.001** 0.000*
(2.05) (1.70)
Cash&Equiv þ/ 0.002 0.009***
(0.67) (4.78)
Liquidity þ/ 0.260*** 0.828***
(4.45) (7.91)
Firm Fixed Effects Yes No
R2 0.079 0.006
Table 4 examines the relation between IR engagement and the likelihood of a tender offer, as described in Equation (2). Standard errors are clustered by
firm; t-statistics are in parentheses.
t1;
liquidity directly related to the tender offer (Faleye 2004; Klein and Zur 2009; Norli, Ostergaard, and Schindele 2015). To the
extent that IR engagement reduces the likelihood of a takeover bid, we expect a negative coefficient estimate on IR Engagement
(b1 , 0) in Equation (2).
Column (1) (Column (2)) of Table 4 reports the results from estimating Equation (2) using firm fixed effects (entropy
balancing). Consistent with our prediction, the coefficient estimates for b1 in both columns are negative and significant at the 1
percent level. In terms of economic magnitude, the results in Table 4 suggest that IR Engagement is associated with a 20–40

percent lower likelihood of receiving a tender offer. Given that an activist campaign can change the entire direction of a firm
and/or result in turnover of its management or board, we see these magnitudes as being economically significant and
meaningful.
While takeover bids may be the most direct method for an activist to exert control, activists may instead seek to exert
influence by taking a large stake in the firm and advocating for shareholder proposals or using other techniques that often rely
on the support of other shareholders. To examine the relation between IR engagement and the likelihood of investor activism
(by means other than a tender offer), we estimate the following regression:
Activismit ¼ b0 þ b1 IR Engagementit þ Controlsit þ ei ð3Þ
where Activism is an indicator equal to 1 if an investor in firm i files a Form 13D (indicating ownership of 5 percent or more of
the firm’s shares and an intent to influence management) in quarter t, and 0 otherwise. All other variables are the same as in
Table 4. Similar to Table 4, we expect a negative coefficient estimate on IR Engagement (b1 , 0).
Column (1) (Column (2)) of Table 5, Panel A reports the results from estimating Equation (3) using firm fixed effects
(entropy balancing). Consistent with our prediction, the coefficient estimates for b1 in both columns are negative and significant
at the 1 percent level. In terms of economic magnitude, these results suggest that IR engagement is associated with a 10–20
percent lower likelihood of activism, as proxied by a 13D in a given quarter (based on the unconditional mean of Activism of
3.4 percent).19
While this effect is both economically large and statistically significant, it is possible that it simply reflects a lower
likelihood of concentrated ownership, i.e., it may be that a commitment to IR engagement attracts lower concentrations of
ownership from both activist and non-activist institutional investors. To address this concern, we perform a placebo test in
which we replace Activism (indicator for whether an investor files a 13D in quarter t) with 5% Ownership (indicator for whether
an investor files a 13G in quarter t). When an investor acquires more than 5 percent ownership in a firm, the investor must file a
13D if there is an intent to influence management or file a 13G if there is no intent to influence management.20 If the results in
Panel A of Table 5 are simply attributable to IR engagement being associated with a lower likelihood of concentrated
ownership for both activist and non-activist investors, then we would expect a negative coefficient estimate on IR Engagement
(b1 , 0). Column (1) (Column (2)) of Table 5, Panel B report the results using firm fixed effects (entropy balancing). The
coefficient on IR Engagement is not statistically significant in either model (t-statistics of 0.43 and 1.02, respectively),
consistent with the results in Panel A reflecting a lower likelihood of investors seeking to influence the firm rather than less
concentrated ownership for all investors.
Factors Influencing the Impact of Mutual Understanding and Trust

The results in Tables 3, 4, and 5 suggest that IR engagement is associated with higher perceptions of management and the
board, as well as a lower likelihood of activism at the firm; however, there are likely situations in which the mutual
understanding and trust facilitated by engagement would be more or less effective at deterring activism. To further understand
the impact of engagement on activism, we explore several cross-sectional predictions in which the impact of dedicated IR
engagement on activism may differ.
First, the composition of the shareholder base may influence the effectiveness of IR engagement in deterring activism. If
the shareholder base is concentrated in relatively few institutional shareholders, then the firm can engage with them more
effectively and efficiently than if the shareholder base is highly dispersed. Additionally, communication with financially
sophisticated investors (such as institutional shareholders) is likely to be much more efficient than communication across a
diverse investor base with significant variation in financial acuity.
Second, because mutual understanding and trust take time to develop, the deterrent effect of engagement on activism may
increase with the tenure of the IR officer. As discussed previously, research in social psychology and organizational behavior
suggests that interpersonal familiarity and rapport leads to increased mutual understanding and trust. Length of relationship is a
seemingly necessary component to build interpersonal familiarity and rapport. If IR engagement mitigates the likelihood and
extent of activism through increased mutual understanding and trust, then the effect should increase with a longer relationship
(i.e., the tenure of the IRO).
19
Our method for identifying activist campaigns—the filing of a 13D—identifies situations when an activist owns 5 percent or more a firm’s stock and
intends to attempt to influence management. There are, however, activist campaigns in which the activist owns less than 5 percent of the firm. For
example, despite owning only 0.8 percent of Microsoft’s outstanding equity, hedge fund ValueAct won a seat on Microsoft’s board of directors in 2013
without a proxy fight (Vardi 2013). Engagement could be even more important in situations when an activist may intentionally own less than 5 percent
in order to avoid the reporting requirement, thus allowing for more privacy in engaging with the firm.
20
If an investor initially files a 13G, but subsequently decides to attempt to influence management, the investor must then file a 13D (SEC 1997).

TABLE 5
IR Engagement and the Likelihood of Activism
Panel A: Likelihood of Activist Targeting

Dependent Variable ¼ Activism
IR Engagement 0.007*** 0.003***
(5.79) (3.08)
LnMVE 0.014*** 0.006***
(18.71) (16.66)
MB 0.000 0.000
(0.58) (1.11)
Prior12MonthReturn 0.000 0.007***
(0.35) (7.06)
ROA 0.000 0.000
(0.65) (0.34)
InstOwnership þ/ 0.002 0.005**
(0.60) (2.57)
(4.03) (8.63)
Analysts þ/ 0.004*** 0.003***
(5.61) (4.36)
Forecasts þ/ 0.001*** 0.001
(3.20) (1.42)
Cash&Equiv þ/ 0.011*** 0.005**
(2.65) (2.01)
Liquidity þ/ 0.354*** 0.343***
(3.66) (3.29)
R2 0.083 0.012
Panel A examines the relation between IR engagement and the likelihood of investor activism (by means other than a tender offer), as described in
Equation (3). Standard errors are clustered by firm; t-statistics are in parentheses.
t1;

TABLE 5 (continued)
Panel B: 5% Ownership Placebo Analysis
Dependent Variable ¼ 5% Ownership
IR Engagement þ/ 0.001 0.002
(0.43) (1.02)
LnMVE þ/ 0.002* 0.014***
(1.74) (16.14)
MB þ/ 0.000 0.000
(0.85) (0.83)
Prior12MonthReturn þ/ 0.008*** 0.013***
(5.80) (6.31)
ROA þ/ 0.011*** 0.013***
(16.22) (13.76)
InstOwnership þ/ 0.156*** 0.178***
(25.59) (29.79)
(15.26) (14.67)
Analysts þ/ 0.002 0.004***
(1.21) (2.58)
Forecasts þ/ 0.003*** 0.003***
(3.00) (3.05)
Cash&Equiv þ/ 0.055*** 0.090***
(6.98) (12.68)
Liquidity þ/ 0.236 1.251***
(1.51) (5.43)
R2 0.112 0.042
Panel B examines the relation between IR engagement and non-activist concentrated ownership. Standard errors are clustered by firm; t-statistics are in
parentheses.
t1;
Finally, because investors’ first-order concern is likely related to performance, it is important to acknowledge that IR
engagement may only go so far in preserving the confidence and loyalty of investors. If performance is particularly poor, then
investors may be less interested in dialog about the firm’s strategy and more interested in advocating changes to that strategy in
order to improve performance. Table 6 presents our analysis of how the composition of the shareholder base is associated with
the effectiveness of IR engagement. After dropping firms with no institutional ownership, we partition the sample from Table 5,
Panel A on the median level of institutional ownership in quarter t. If lower concentrations of institutional ownership limit the

TABLE 6
Concentration of Investor Base and the Effectiveness of Engagement
Below-Median Above-Median
Institutional Institutional
Ownership Ownership
IR Engagement 0.004 0.010***
(1.54) (7.08)
LnMVE 0.014*** 0.015***
(11.51) (13.29)
MB 0.000 0.000
(0.43) (0.07)
Prior12MonthReturn 0.003** 0.005***
(2.47) (4.36)
ROA 0.000 0.000
(0.72) (0.91)
(0.16) (1.54)
NumPressReleases þ/ 0.001 0.003***
(1.17) (3.70)
Analysts þ/ 0.004*** 0.003***
(3.75) (3.61)
Forecasts þ/ 0.002** 0.001
(2.38) (1.45)
Cash&Equiv þ/ 0.009 0.017***
(1.53) (2.65)
Liquidity þ/ 0.200 0.571***
(1.54) (3.73)
p-value of difference between IR Engagement 0.099
in Columns (1) and (2)
R2 0.110 0.102
Table 6 examines how the composition of the shareholder base is associated with IR engagement by partitioning the sample into above- and below-median
institutional ownership. Standard errors are clustered by firm, t-statistics are in parentheses, and firm and year fixed effects are included in all regressions.
t1;
effectiveness of IR engagement in deterring activism, then the coefficient on IR Engagement should be lower for firms with low
institutional ownership. Table 6 reports the results. Column (1) (Column (2)) contains observations of below- (above)-median
institutional ownership. Consistent with lower institutional ownership decreasing the effectiveness and efficiency of IR
engagement, the coefficient on IR Engagement (b1) is significantly lower (p-value , 10 percent) for firms with below-median
institutional ownership, relative to firms with above-median institutional ownership.

TABLE 7
IR Engagement and IR Officer Tenure
Dependent Variable ¼
Activism
IR Engagement (Min. One Year Tenure) 0.007***
(5.79)
IR Engagement (Min. Three Years Tenure) 0.011***
(5.74)
LnMVE 0.014*** 0.014***
(18.71) (17.78)
MB 0.000 0.000
(0.58) (1.12)
Prior12MonthReturn 0.000 0.001
(0.35) (0.79)
ROA 0.000 0.000
(0.65) (0.74)
(0.60) (0.20)
(4.03) (3.34)
Analysts þ/ 0.004*** 0.004***
(5.61) (5.44)
Forecasts þ/ 0.001*** 0.002***
(3.20) (3.82)
Cash&Equiv þ/ 0.011*** 0.010**
(2.65) (2.05)
Liquidity þ/ 0.354*** 0.357***
(3.66) (3.42)
p-value of difference between one- and three-years 0.027
minimum tenure in Columns (1) and (2), respectively
R2 0.083 0.093
Table 7 examines the relation between IR officer tenure and the likelihood of activism. Standard errors are clustered by firm, t-statistics are in parentheses,
and firm and year fixed effects are included in all regressions.
IR Engagement ¼ an indicator variable set equal to 1 for firm-quarters in which we observe an IR officer in place for at least one year (first row) or three
years (second row), as indicated, and 0 otherwise;
t1;
Table 7 examines how IRO tenure is related to the effectiveness of IR engagement in reducing the likelihood of activism.
We first replicate the result in Column (1) of Table 5, Panel A, in which IR Engagement ¼ 1 when the tenure of the IRO is at
least one year. Next, we estimate the same model after redefining IR Engagement as equal to 1 when the tenure of the IRO is at
least three years (the average IRO tenure in our sample). In the second model, we use stacked regressions and exclude

observations in which an IRO is present, but her tenure is less than three years, in order to compare long-tenure IROs to the
absence of IR. We find that, conditional on having IR engagement, the duration of the IRO’s tenure is associated with an
incrementally lower likelihood of being targeted by an activist. It is important to note that this test links a characteristic of the
IRO to the likelihood of activism, which helps to mitigate alternative explanations related to firm type, as they are unlikely to
vary with the tenure of the IRO.
Table 8 presents the analysis related to whether firm performance influences the effectiveness of IR engagement in deterring
activism. Because we do not have a formal prediction for what would constitute particularly poor performance (i.e., the threshold
at which investor concerns about performance would overtake the benefit of mutual understanding and trust facilitated by
engagement), we partition the sample from Table 5, Panel A into quintiles based on the firm’s stock performance over the
previous year. If poor firm performance limits the influence of IR engagement in deterring activism, then we would not expect a
significantly negative coefficient on IR Engagement for the lowest-performing firms. We arrange the table with the lowest
performing firms (Quintile 1) in Column (1) and the highest performing firms (Quintile 5) in Column (5). The mean stock return
for quintiles 1, 2, 3, 4, and 5 is 53 percent, 21 percent, 2 percent, 19 percent, and 83 percent, respectively. While the
coefficient on IR Engagement (b1) is statistically insignificant for the lowest quintile of performance, it is statistically significant
across the remaining quintiles, which include both negative performance (Quintiles 2 and 3) and positive performance (Quintiles 4
and 5). These results indicate that engagement is effective not only when the firm is performing well, but also when it is
performing somewhat poorly. However, when performance is extremely poor, engagement is no longer effective.
V. ADDITIONAL ANALYSES AND ROBUSTNESS TESTS
IR Engagement and the Escalation of Activist Campaigns

While the results of our main analyses suggest that IR engagement deters investor activism, it is unlikely to entirely prevent
it. However, even in cases where IR engagement does not prevent an activist campaign, it may still benefit managers by
attenuating its escalation toward more contentious or costlier outcomes. In this section, we examine this possibility.
To examine the impact of IR engagement on the escalation of an initiated campaign, we limit our sample to initiated
campaigns and estimate the following regression model:
Contentiousit ¼ b0 þ b1 IR Engagementit þ Controlsit þ eit ð4Þ
where Contentious is an indicator equal to 1 if the campaign involves a proxy threat, proxy fight, lawsuit threat, legal action, or
vote no campaign, and 0 otherwise. The vector of Controls includes one variable in addition to those included in Equation
(3)—the number of initiatives within the activist campaign (Num Initiatives)—to control for the possibility that campaigns with
contentious actions differ fundamentally in scope from other campaigns. All other variables are as defined in Tables 4 and 5. To
the extent that IR engagement mitigates the contentious escalation of a campaign, we would expect a negative coefficient on IR
Engagement (b1 , 0) in Equation (4). Column (1) of Table 9, Panel A reports the results from estimating Equation (4) using
entropy balancing.21 Consistent with our prediction, the coefficient estimate for b1 is negative and statistically significant. In
terms of economic magnitude, these results suggest that our proxy for IR engagement is associated with an 8 percent lower
likelihood of a contentious escalation of the activist campaign (based on the unconditional mean of Contentious of 0.546).
Perhaps the most contentious escalation of a campaign outside of a takeover is the ousting of the CEO, which may be the
clearest setting in which the incentives of the CEO and the activist are not aligned. If engagement increases investor support for
management and deters the escalation of a campaign, then we expect engagement to reduce the likelihood of CEO turnover. To
examine this, we replace Contentious in Equation (4) with CEOTurnover, an indicator for whether the CEO left the firm during
the year after a campaign was initiated. If engagement reduces the likelihood of CEO turnover, then we expect a negative
coefficient on IR Engagement (b1 , 0). Table 9, Panel B contains the results of this analysis. Consistent with IR engagement
protecting the CEO, the coefficient on IR Engagement is negative (significant at the 5 percent level), with the magnitude
suggesting that IR engagement is associated with a 32 percent lower likelihood of CEO turnover (based on the unconditional
mean of CEOTurnover of 0.201).
IR Engagement and Withdrawn Proposals

Activists can also take subtle actions to influence a firm, such as putting forward a proposal to be voted on by other
shareholders. We contend that IR can play a role in even this type of activism. In particular, we argue that proposals are more
likely to be subsequently withdrawn if IR engagement is effective at resolving shareholder concerns, or if the proponent realizes
21
Due to limited within-firm variation, we do not estimate the models using firm fixed effects in this analysis.

TABLE 8
Firm Performance and the Effectiveness of IR Engagement
Quintile 1 Quintile 5
(Lowest (Highest
Returns) Quintile 2 Quintile 3 Quintile 4 Returns)
Variable Prediction (1) (2) (3) (4) (5)
IR Engagement 0.000 0.010*** 0.005** 0.011*** 0.010***
(0.10) (3.56) (2.06) (5.26) (3.49)
LnMVE 0.017*** 0.015*** 0.012*** 0.006*** 0.007***
(10.47) (8.20) (6.74) (3.96) (4.30)
MB 0.000* 0.000 0.000* 0.000 0.000
(1.51) (0.13) (1.32) (0.02) (0.61)
Prior12MonthReturn 0.005 0.002 0.011** 0.004 0.002
(0.98) (0.45) (2.49) (0.98) (1.14)
ROA 0.001* 0.000 0.000 0.001 0.000
(1.43) (0.66) (0.15) (1.52) (0.75)
InstOwnership þ/ 0.019** 0.017*** 0.005 0.010* 0.018***
(2.21) (2.84) (0.89) (1.85) (2.88)
NumPressReleases þ/ 0.002 0.004** 0.002 0.003*** 0.000
(1.39) (2.49) (1.23) (2.62) (0.32)
Analysts þ/ 0.006*** 0.005*** 0.002 0.001 0.004***
(3.11) (3.21) (1.48) (0.42) (2.62)
Forecasts þ/ 0.002 0.002* 0.000 0.000 0.001
(1.60) (1.93) (0.27) (0.15) (0.98)
Cash&Equiv þ/ 0.031*** 0.012 0.012 0.011 0.008
(3.25) (1.21) (1.23) (1.07) (0.91)
Liquidity þ/ 0.285 0.144 0.525** 0.914*** 0.025
(1.44) (0.64) (2.20) (3.52) (0.10)
Average market-adjusted return in quintile 53% 21% 2% 19% 83%
Observations 64,532 64,533 64,532 64,533 64,532
R2 0.171 0.220 0.232 0.242 0.213
Table 8 presents the results of testing how firm performance influences the relationship between IR engagement and the likelihood of activism by
partitioning the sample into quintiles based on the firm’s stock return over the previous year. Standard errors are clustered by firm, t-statistics are in
parentheses, and firm and year fixed effects are included in all regressions.
t1;
the strength of the relationship between other existing shareholders and the firm. As reported in Table 10, we find that the
presence of IR engagement is associated with a higher likelihood of a proposal being withdrawn, consistent with (1) IR
engagement being an important factor in resolving the concerns of investors before a vote, and/or (2) the investor recognizing
stronger-than-expected support for management from the rest of the shareholder base.

TABLE 9
IR Engagement and the Escalation of Activist Campaigns
Panel A: Contentious Escalation of Activist Campaign

Dependent Variable ¼ Contentious
Variable Prediction (1)
IR Engagement 0.048*
(1.83)
Num Initiatives þ/ 0.006
(0.83)
LnMVE þ/ 0.005
(0.62)
MB þ/ 0.008***
(2.58)
Prior12MonthReturn þ/ 0.005
(0.13)
ROA þ/ 0.015
(1.45)
InstOwnership þ/ 0.067
(1.23)
NumPressReleases þ/ 0.001
(0.04)
Analysts þ/ 0.054***
(2.87)
Forecasts þ/ 0.003
(0.30)
Cash&Equiv þ/ 0.058
(0.74)
Liquidity þ/ 4.933
(1.24)
Entropy Balanced Control Group Yes
Industry Fixed Effects Yes
Year Fixed Effects Yes
Observations 1,877
R2 0.145
Panel A examines the relation between IR engagement and the escalation of an activist campaign (once initiated) using a measure of confrontational
methods as the dependent variable. Standard errors are clustered by firm; t-statistics are in parentheses.
Contentious ¼ an indicator equal to 1 if the campaign involves a proxy threat, proxy fight, lawsuit threat, legal action, or vote no campaign, and 0
otherwise;
t1;

TABLE 9 (continued)
Panel B: CEO Turnover
Dependent Variable ¼ CEOTurnover
Variable Prediction (1)
IR Engagement 0.065**
(2.27)
Num Initiatives þ/ 0.007
(0.97)
LnMVE þ/ 0.041***
(4.00)
MB þ/ 0.003
(0.83)
Prior12MonthReturn þ/ 0.187***
(3.99)
ROA þ/ 0.047***
(3.15)
InstOwnership þ/ 0.043
(0.57)
NumPressReleases þ/ 0.058***
(2.67)
Analysts þ/ 0.021
(1.02)
Forecasts þ/ 0.052***
(5.37)
Cash&Equiv þ/ 0.064
(0.63)
Liquidity þ/ 17.659***
(3.28)
Entropy Balanced Control Group Yes
Industry Fixed Effects Yes
Year Fixed Effects Yes
Observations 790
R2 0.395
***, **, * Indicate significance at the 0.01, 0.05, and 0.10 levels, respectively.
Panel B examines the relation between IR engagement and the escalation of an activist campaign (once initiated) using future CEO turnover as the
dependent variable. Standard errors are clustered by firm; t-statistics are in parentheses.
CEOTurnover ¼ an indicator equal to 1 if the CEO left the firm in the year after an activist campaign begins, and 0 otherwise;
t1;
Alternate Matching Techniques

The entropy balancing approach used in our main analyses achieves covariate balance between IR and non-IR firms across
the entire sample, with year fixed effects in our analyses. Thus, the analyses are estimated within each year, but across
treatment and control samples that may not have similar distributional properties within each year. In untabulated analyses, we

TABLE 10
IR Engagement and Withdrawn Shareholder Proposals
Dependent Variable ¼
WithdrawnProposal
IR Engagement þ 0.002*** 0.001
(3.00) (0.91)
LnMVE þ/ 0.001*** 0.008***
(3.31) (17.14)
MB þ/ 0.000 0.000
(0.13) (0.55)
Prior12MonthReturn þ/ 0.001** 0.004***
(2.57) (8.48)
ROA þ/ 0.000** 0.001*
(2.50) (1.78)
InstOwnership þ/ 0.001 0.008***
(0.57) (4.73)
NumPressReleases þ/ 0.000 0.005***
(1.59) (13.09)
Analysts þ/ 0.000 0.003***
(1.01) (5.30)
Forecasts þ/ 0.000** 0.001***
(1.96) (2.81)
R2 0.077 0.028
Table 10 examines the relation between IR engagement and the likelihood of a withdrawn shareholder proposal. Standard errors are clustered by firm; t-
statistics are in parentheses.
WithdrawnProposal ¼ an indicator equal to 1 if the firm had at least one withdrawn shareholder proposal during the quarter;
t1.
replicate our main results after implementing the entropy balancing procedure within each year in the sample. The main results
are qualitatively similar using within-year entropy balancing.
We also use an alternate (and more restrictive) within-year matching approach. Specifically, we use an event-study design
that focuses on the date in which firms initiate an internal IR program. As summarized in Table 1, we identify 997 instances of
firms initiating an IR program during our sample period. We match these firms with otherwise similar non-IR firms, based on
year, industry, and quintile rank of firm size, sales growth, change in institutional investor base, and access to external capital
(proxied by distance to default, following Hillegeist, Keating, Cram, and Lundstedt [2004]). We then examine treatment (IR)
and control (non-IR) firms over the three years before and after IR initiation (or the matching non-initiation year for non-IR
firms), resulting in a combined sample of 25,099 observations. One limitation to this approach is that the relatively low
frequency of IR initiations results in a roughly 90 percent reduction in the sample, which limits our application of this approach

TABLE 11
Alternative Matching Based on IR Initiations
Panel A: Investor Perceptions of Management and the Board, Auditor Vote Placebo Analysis
Dependent Variables
InvPerception AuditorSupport
IR Initiation þ/ 0.006** 0.002
(2.05) (0.50)
Post þ/ 0.008** 0.000
(2.41) (0.00)
IR Initiation 3 Post þ/? 0.009*** 0.002
(2.62) (0.60)
LnMVE þ/ 0.005*** 0.001
(3.25) (0.66)
MB þ/ 0.000 0.000
(1.21) (0.10)
Prior12MonthReturn þ 0.002 0.003**
(1.07) (2.02)
ROA þ 0.000 0.000
(0.60) (0.40)
InstOwnership þ/ 0.018*** 0.004
(4.35) (1.20)
NumPressReleases þ/ 0.000 0.002
(0.21) (1.54)
Analysts þ/ 0.007*** 0.001
(4.27) (0.43)
(1.48) (0.43)
ISS Recommendation Fixed Effects Yes NA
R2 0.391 0.191
Panel A examines the relation between IR engagement and investor perception or auditor support using IR initiations. Standard errors are clustered by
firm; t-statistics are in parentheses.
IR Initiation ¼ an indicator variable equal to 1 (0) for the treatment (matched control) firms that initiated an IR program;
Post ¼ an indicator variable equal to 1 (0) for the three years following (preceding) the initiation of the IR program;
t1.
to only the analyses presented in Tables 3, 4 and 5.22 Panel A of Table 11 presents the result for investor perceptions and the
auditor vote placebo analysis. Panel B presents the results for takeover attempts, the likelihood of activist targeting, and the 5
22
The approach is not well-suited for the within-campaign tests because it requires an IR initiation in close proximity to an activist campaign (each of
which are relatively infrequent), which significantly reduces the sample such that replication of Table 9 using the IR initiations sample infeasible.

TABLE 11 (continued)
Panel B: Takeover Attempts, Likelihood of Activist Targeting, 5% Ownership Placebo Analysis
Dependent Variables
TenderOffer Activism 5% Ownership
Variable Prediction (1) (2) (3)
IR Initiation þ/ 0.001 0.005 0.015*
(0.37) (1.45) (1.93)
Post þ/ 0.004* 0.014*** 0.002
(1.68) (3.76) (0.29)
IR Initiation 3 Post //? 0.005* 0.018*** 0.008
(1.88) (3.84) (0.88)
LnMVE 0.001 0.006*** 0.012***
(0.88) (5.11) (4.38)
MB 0.000 0.000** 0.001
(0.90) (2.05) (1.17)
Prior12MonthReturn 0.006*** 0.004* 0.008*
(5.40) (1.72) (1.74)
ROA 0.000 0.000 0.010***
(0.63) (0.47) (4.43)
InstOwnership þ/ 0.003 0.002 0.225***
(1.00) (0.30) (14.91)
NumPressReleases þ/ 0.001* 0.004*** 0.024***
(1.82) (3.41) (6.55)
Analysts þ/ 0.002 0.003* 0.002
(1.46) (1.74) (0.44)
Forecasts þ/ 0.002** 0.000 0.005**
(2.17) (0.15) (2.28)
Cash&Equiv þ/ 0.002 0.009 0.080***
(0.44) (1.05) (4.66)
Liquidity þ/ 0.386** 0.484 0.387
(2.23) (1.52) (0.70)
Observations 25,099 25,099 25,099
R2 0.010 0.017 0.052
Panel B examines the relation between IR engagement and the likelihood of a tender offer or non-tender offer activism or non-activist concentrated
ownership using IR initiations. Standard errors are clustered by firm; t-statistics are in parentheses.
IR Initiation ¼ an indicator variable equal to 1 (0) for the treatment (matched control) firms that initiated an IR program;
Post ¼ an indicator variable equal to 1 (0) for the three years following (preceding) the initiation of the IR program;
t1;

percent ownership placebo analysis. The variable of interest is the interaction between IR engagement and the indicator for the
post-initiation period (Post). We label the IR variable IR Initiation to avoid confusion with the similar variable in the previous
results. Despite the greatly reduced sample, our main results are robust to the use of this matching method.
VI. CONCLUSION
While prior research has examined determinants and consequences of investor activism, little is known about how direct,
ongoing engagement with shareholders is associated with the likelihood and extent of investor activism. The two-way dialog
that characterizes IR engagement with shareholders is distinct from public disclosure and may play a vital role in deterring
activism by building trust with existing shareholders.
Consistent with this intuition, we find that IR engagement is associated with increased investor confidence in management
and the board, and a lower likelihood of investor activism at the firm. Intuitively, the effectiveness of engagement decreases
when there is extreme negative firm performance or a less concentrated investor base, but it increases with IR officer tenure. In
addition to deterring activism, IR engagement leads to more withdrawn shareholder proposals and mitigates the costly and
contentious escalation of initiated activist campaigns.
Although we provide ample evidence that IR engagement is associated with a lower likelihood and severity of shareholder
activism, and that this relation appears to be linked with the development of mutual understanding and trust, we cannot rule out
the possibility that IR engagement impacts activism through other channels, as well. For example, prior research finds that IR is
associated with various capital market outcomes, such as analyst following, earnings volatility, liquidity, stock volatility,
disclosure, and institutional ownership (Bushee and Miller 2012; Kirk and Vincent 2014; Chapman et al. 2019). We control for
these outcomes in our analyses, but if our controls do not fully capture their impact on activism, then these outcomes may
contribute incrementally to the extent to which IR engagement mitigates activism. Despite these possibilities, we believe our
results provide compelling evidence that IR engagement has a mitigating effect on costly activist actions, and the development
of trust and alignment is (at least) one channel through which this relation manifests.
REFERENCES
Becht, M., J. Franks, C. Mayer, and S. Rossi. 2009. Returns to shareholder activism: Evidence from a clinical study of the Hermes UK
Focus Fund. Review of Financial Studies 22 (8): 3093–3129. https://doi.org/10.1093/rfs/hhn054
Bethel, J. E., J. P. Liebeskind, and T. Opler. 1998. Block share purchases and corporate performance. Journal of Finance 53 (2): 605–634.
https://doi.org/10.1111/0022-1082.244195
BlackRock. 2018. A sense of purpose. Larry Fink’s Annual Letter to CEOs. Available at: https://www.blackrock.com/corporate/investor-
relations/larry-fink-ceo-letter
Bourveau, T., and J. Schoenfeld. 2017. Shareholder activism and voluntary disclosure. Review of Accounting Studies 22 (September):
1307–1339. https://doi.org/10.1007/s11142-017-9408-0
Brav, A., W. Jiang, F. Partnoy, and R. Thomas. 2008. Hedge fund activism, corporate governance, and firm performance. Journal of
Finance 63 (4): 1729–1775. https://doi.org/10.1111/j.1540-6261.2008.01373.x
Brochet, F., G. Miller, and S. Srinivasan. 2014. Do analysts follow managers who switch companies? An analysis of relationships in the
capital markets. The Accounting Review 89 (2): 451–482. https://doi.org/10.2308/accr-50636
Brown, L., A. Call, M. Clement, and N. Sharp. 2015. Inside the ‘‘black box’’ of sell-side financial analysts. Journal of Accounting
Research 53 (1): 1–47. https://doi.org/10.1111/1475-679X.12067
Brown, L., A. Call, M. Clement, and N. Sharp. 2016. The activities of buy-side analysts and the determinants of their stock
recommendations. Journal of Accounting and Economics 62 (1): 139–156. https://doi.org/10.1016/j.jacceco.2016.06.002
Brown, L. D., A. C. Call, M. B. Clement, and N. Y. Sharp. 2018. Managing the narrative: Investor relations officers and corporate
disclosure. Available at: https://ssrn.com/abstract¼2934937
Bushee, B., and G. Miller. 2012. Investor relations, firm visibility, and investor following. The Accounting Review 87 (3): 867–897.
https://doi.org/10.2308/accr-10211
Bushee, B., M. Jung, and G. Miller. 2017. Do investors benefit from selective access to management? Journal of Financial Reporting 2
(1): 31–61.
Carleton, W., J. Nelson, and M. Weisbach. 1998. The influence of institutions on corporate governance through private negotiations:
Evidence from TIAA-CREF. Journal of Finance 53 (4): 1335–1362. https://doi.org/10.1111/0022-1082.00055
Carr, D. 2013. Using Twitter to move the markets. New York Times (October 6). Available at: https://www.nytimes.com/2013/10/07/
business/media/using-twitter-to-move-the-markets.html?ref¼global-home&_r¼0
Chapman, K., G. Miller, and H. White. 2019. Investor relations and information assimilation. The Accounting Review 94 (2): 105–131.
https://doi.org/10.2308/accr-52200
Chen, J., and M. Jung. 2016. Activist hedge funds and firm disclosure. Review of Financial Economics 29: 52–63. https://doi.org/10.1016/
j.rfe.2015.09.004

Conference Board. 2014. Guidelines for engagement. Available at: https://www.conference-board.org/publications/publicationdetail.

cfm?publicationid¼2708&centerId¼1
Deloitte. 2015. Investor engagement and activist shareholder strategies. Available at: https://corpgov.law.harvard.edu/2019/02/19/
investor-engagement-and-activist-shareholder-strategies/
Ernst & Young. 2015. Shareholder activism: An engagement opportunity. Available at: https://corpgov.law.harvard.edu/2015/04/10/
shareholder-activism-an-engagement-opportunity/
Faleye, O. 2004. Cash and corporate control. Journal of Finance 59 (5): 2041–2060. https://doi.org/10.1111/j.1540-6261.2004.00691.x
Fischer, P., J. Gramlich, B. Miller, and H. White. 2009. Investor perceptions of board performance: Evidence from uncontested director
elections. Journal of Accounting and Economics 48 (2-3): 172–189. https://doi.org/10.1016/j.jacceco.2009.09.002
Fronda, A. 2016. The rebranding of corporate raiders. Available at: https://web.archive.org/web/20160310111401/https://www.
worldfinance.com/strategy/the-rebranding-of-corporate-raiders
Gantchev, N. 2013. The costs of shareholder activism: Evidence from a sequential decision model. Journal of Financial Economics 107
(3): 610–631. https://doi.org/10.1016/j.jfineco.2012.09.007
Glaser, M. 2008. How one investor used social media to shake up Yahoo. Available at: http://mediashift.org/2008/02/how-one-investor-
used-social-media-to-shake-up-yahoo052/
Gordon, L. A., and J. Pound. 1993. Information, ownership structure, and shareholder voting: Evidence from shareholder-sponsored
corporate governance proposals. Journal of Finance 48 (2): 697–718. https://doi.org/10.1111/j.1540-6261.1993.tb04734.x
Green, T. C., R. Jame, S. Markov, and M. Subasi. 2014. Access to management and the informativeness of analyst research. Journal of
Financial Economics 114 (2): 239–255. https://doi.org/10.1016/j.jfineco.2014.07.003
Greenwood, R., and M. Schor. 2009. Investor activism and takeovers. Journal of Financial Economics 92 (3): 362–375. https://doi.org/
10.1016/j.jfineco.2008.05.005
Gulati, R. 1995. Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of
Management Journal 38 (1): 85–112.
Hainmueller, J. 2012. Entropy balancing for causal effects: A multivariate reweighting method to produce balanced samples in
observational studies. Political Analysis 20 (1): 25–46. https://doi.org/10.1093/pan/mpr025
Hillegeist, S., E. Keating, D. Cram, and K. Lundstedt. 2004. Assessing the probability of bankruptcy. Review of Accounting Studies 9 (1):
5–34. https://doi.org/10.1023/B:RAST.0000013627.90884.b7
Ho, D. E., K. Imai, G. King, and E. A. Stuart. 2007. Matching as nonparametric preprocessing for reducing model dependence in
parametric causal inference. Political Analysis 15 (3): 199–236. https://doi.org/10.1093/pan/mpl013
Holderness, C., and D. Sheehan. 1985. Raiders or saviors? The evidence on six controversial investors. Journal of Financial Economics
14 (4): 555. https://doi.org/10.1016/0304-405X(85)90026-1
HP Inc. 2019. Investor relations director, II. LinkedIn. Available at: https://www.linkedin.com/jobs/view/investor-relations-director-ii-at-
hp-1148966030/ (last accessed May 20, 2019).
J.P. Morgan. 2015. The activist revolution: Understanding and navigating a new world of heightened investor scrutiny. Available at:
https://www.jpmorgan.com/content/dam/jpm/corporate/investment-bank/cfa/pub/Understanding_and_Navigating_a_New_World_
of_Heightened_Investor_Scrutiny.pdf
Johnson, T. 2017. Shareholder engagement: An evolving landscape. Ethical Boardroom. Available at: https://corpgov.law.harvard.edu/
2017/03/09/shareholder-engagement-an-evolving-landscape/
Karolyi, G. A. D. Kim, and R. C. Liao. 2017. The theory and practice of investor relations: A global perspective. Available at: https://dx.
doi.org/10.2139/ssrn.2591079
Khurana, I. K. and Y. Li, and W. Wang. 2018. The effects of hedge fund interventions on strategic firm behavior. Management Science 64
(9): 3971–4470. https://doi.org/10.1287/mnsc.2017.2816
Kingsdale Advisors. 2019. The director-shareholder engagement guidebook. Available at: https://corpgov.law.harvard.edu/2019/03/02/
the-director-shareholder-engagement-guidebook/
Kirk, M. P., and S. Markov. 2016. Come on over: Analyst/investor days as a disclosure medium. The Accounting Review 91 (6): 1725–
1750. https://doi.org/10.2308/accr-51418
Kirk, M. P., and J. Vincent. 2014. Professional investor relations within the firm. The Accounting Review 89 (4): 1421–1452. https://doi.
org/10.2308/accr-50724
Klein, A., and E. Zur. 2009. Entrepreneurial shareholder activism: Hedge funds and other private investors. Journal of Finance 64 (1):
187–229. https://doi.org/10.1111/j.1540-6261.2008.01432.x
Knight, R. 2010. Some background on investor relations: Its growth and spread. Available at: http://www.irs.org.uk/files/A_brief_
history_of_investor_relations1.doc
Koppell, J. (ed.) 2011. Origins of Shareholder Advocacy. New York, NY: Springer.
Larcker, D., and B. Tayan. 2016. Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences.
London, U.K.: Pearson Education.
McMullin, J., and B. Schonberger. 2017. Entropy-balanced discretionary accruals. Kelley School of Business Research Paper No. 15-31;
Simon Business School Working Paper No. FR 15-01. Available at: https://ssrn.com/abstract¼2556389
National Investor Relations Institute (NIRI). 2003. Definition of investor relations. Available at: https://www.niri.org/about-niri

National Investor Relations Institute (NIRI). 2005. The NIRI Compensation Survey 2005: An Assessment of Responsibilities, Staffing, and
Salaries of Investor Relations Practitioners. National Investor Relations Institute Fifth Measurement, MS-2005-1. Alexandria, VA:
NIRI.
National Investor Relations Institute (NIRI). 2016a. BlackRock focus on company-shareholder engagement. IR Update (September): 10–
14. Available at: https://www.niri.org/NIRI/media/NIRI/Advocacy/0916_NIRI_IRU_Feat2_1.pdf
National Investor Relations Institute (NIRI). 2016b. 2016 IR profession, budget and staffing research report. Available at: https://www.
niri.org/niri/media/protected-documents_excludeglobalsubs/analytics%20reports/ir-budget-and-staffing-analytics-2016.pdf
National Investor Relations Institute (NIRI). 2016c. Avoid proxy wars with activist investors. Available at: https://www.cfo.com/investor-
relations-banking-capital-markets/2016/02/avoid-proxy-wars-activist-investors/
New York Stock Exchange (NYSE). 2016. The effect of shareholder activism on corporate strategy. Available at: https://www.nyse.com/
publicdocs/Shareholder_Engagement_Survey_Report_2016.pdf
Norli, Ø., C. Ostergaard, and I. Schindele. 2015. Liquidity and shareholder activism. Review of Financial Studies 28 (2): 486–520. https://
doi.org/10.1093/rfs/hhu070
PricewaterhouseCoopers (PwC). 2015. Shareholder activism: Who, what, when, and how? Available at: https://corpgov.law.harvard.edu/
2015/04/07/shareholder-activism-who-what-when-and-how/
ProxyPulse. 2016. 2016 Proxy season review, 3rd edition. Available at: https://www.broadridge.com/_assets/pdf/broadridge-2016-proxy-
season-review.pdf
Ruback, R. S. 1987. An overview of takeover defenses. In Mergers and Acquisitions, 49–68. Chicago. IL: University of Chicago Press.
Securities and Exchange Commission (SEC). 1997. Manual of publicly available telephone interpretations, Section O. (July). Available
at: https://www.sec.gov/interps/telephone/cftelinterps_reg13d-13g.pdf
Securities and Exchange Commission (SEC). 2010. SEC adopts new measures to facilitate director nominations by shareholders. (August
25). Available at: https://www.sec.gov/news/press/2010/2010-155.htm
Securities and Exchange Commission (SEC). 2000. Final rule: Selective disclosure and insider trading. Available at: https://www.sec.
gov/rules/final/33-7881.htm
Securities and Exchange Commission (SEC). 2011. SEC adopts rules for say-on-pay and golden parachute compensation as required
under Dodd-Frank Act. (January 25). Available at: https://www.sec.gov/news/press/2011/2011-25.htm
Shah, P., and K. Jehn. 1993. Do friends perform better than acquaintances? The interaction of friendship, conflict, and task. Group
Decision and Negotiation 2 (2): 149–165. https://doi.org/10.1007/BF01884769
Smith, M. 1996. Shareholder activism by institutional investors: Evidence from CalPERS. Journal of Finance 51 (1): 227–252. https://
doi.org/10.1111/j.1540-6261.1996.tb05208.x
Solomon, D., and E. Soltes. 2015. What are we meeting for? The consequences of private meetings with investors. Journal of Law and
Economics 58 (2): 325–355. https://doi.org/10.1086/684038
Soltes, E. 2014. Private interaction between firm management and sell-side analysts. Journal of Accounting Research 52 (1): 245–272.
https://doi.org/10.1111/1475-679X.12037
Steiner, I. 1972. Group Process and Productivity. New York, NY: Academic Press.
Sullivan & Cromwell. 2016. 2016 U.S. shareholder activism review and analysis. Available at: https://sullcrom.com/siteFiles/
Publications/SC_Publication_2016_U.S._Shareholder_Activism_Review_and_Analysis.pdf
Vardi, N. 2013. ValueAct hedge fund’s huge Microsoft victory. (September 3). Available at: https://www.forbes.com/sites/nathanvardi/
2013/09/03/valueact-hedge-funds-huge-microsoft-victory/#40b7af2b18ae
Wachtell, Lipon, Rosen & Katz. 2019. Dealing with activist hedge funds and other activist investors. Available at: https://corpgov.law.
harvard.edu/2019/01/25/dealing-with-activist-hedge-funds-and-other-activist-investors-2/
Wessel, R. 2011. Activist investors turn to social media to enlist support. New York Times (March 24). Available at: https://dealbook.
nytimes.com/2011/03/24/activist-investors-turn-to-social-media-to-enlist-support/

Copyright of Accounting Review is the property of American Accounting Association and its
content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder's express written permission. However, users may print, download, or email
articles for individual use.

Chapman Et Al 2022

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapman Et Al 2022

Uploaded by

Copyright:

Available Formats

THE ACCOUNTING REVIEW American Accounting Association

Vol. 97, No. 2 DOI: 10.2308/TAR-2018-0361

Investor Relations, Engagement, and Shareholder Activism

The Accounting Review

The Accounting Review

II. INSTITUTIONAL BACKGROUND AND MOTIVATION

Evolution of Investor Activism

The Accounting Review

Investor Relations Engagement and Implications for Activism

The Accounting Review

III. RESEARCH DESIGN, DATA, AND SAMPLE SELECTION

Measuring IR Engagement and Research Design

The Accounting Review

Data and Sample Selection

The Accounting Review

IV. EMPIRICAL ANALYSES

IR Engagement and Shareholder Perceptions of Management and the Board

The Accounting Review

Panel A: Director and Auditor Vote Sample Variables (Used in Table 3)

(continued on next page)

The Accounting Review

(continued on next page)

The Accounting Review

(continued on next page)

The Accounting Review

IR Engagement and the Likelihood of Activism

The Accounting Review

Panel A: IR Engagement and Investor Perceptions of Management and the Board

The Accounting Review

The Accounting Review

The Accounting Review

Factors Influencing the Impact of Mutual Understanding and Trust

The Accounting Review

Panel A: Likelihood of Activist Targeting

(continued on next page)

The Accounting Review

The Accounting Review

The Accounting Review

The Accounting Review

V. ADDITIONAL ANALYSES AND ROBUSTNESS TESTS

IR Engagement and the Escalation of Activist Campaigns

IR Engagement and Withdrawn Proposals

The Accounting Review

The Accounting Review

Panel A: Contentious Escalation of Activist Campaign

(continued on next page)

The Accounting Review

Alternate Matching Techniques

The Accounting Review

The Accounting Review

The Accounting Review

The Accounting Review

The Accounting Review

Conference Board. 2014. Guidelines for engagement. Available at: https://www.conference-board.org/publications/publicationdetail.

The Accounting Review

The Accounting Review

You might also like