Investors and disclosure

Investors, who invest and employ funds, consist of institutional investors (life insurance, damage insurance, trust bank, pension fund, etc.), business entities and retail/foreign investors. Investor relations is an activity to disclose corporate latest financial affairs/management information, future business plans and market trend to these investors voluntarily for building relationship and obtaining understanding and support.

IR is marketing to create valuation

National Investor Relations Institute in USA, that is an advanced nation of IR, defines IR as the following:

‘IR is a strategic management activity involving the whole company that unites corporate functions of finance and communication, and it provides investors with corporate achievement and the correct figure of prospects. The activity is effective to reduce capital cost ultimately.’

In other words, IR is a marketing activity that attaches significance to a communication strategy to enhance corporate valuation.

Since IR is a marketing activity, it is important to design a programme and a goal that suit the target by making clear what object to approach and grasping characteristics and needs correctly by research and so on.

The target of IR

The target of IR is roughly classified into the following:

• Individual/Potential shareholders: an individual shareholder and a person who will be a shareholder registered in lists. Especially finding potential shareholders leads to development of securities markets.
• Institutional investors/fund managers: institutional investors who invest to operate funds, such as life insurance company, damage insurance company, trust bank, investment trust, pension fund, etc. and their fund managers.
• Sell-side Analyst: An analyst of a securities firm that sell shares.
• Buy-side Analyst: An analyst of an institutional investor who buys shares or bonds (invests).
• Bond rating agency: They receive information about credit worthiness of bonds from issuers for research and analysis and release the result as credit rating like Aaa etc. It is been used more by corporations for IR activity to measure corporate credibility objectively. Moody’s and Standard & Poor’s are well known.
• Financial journalists: journalists in charge of finance, investment and economic field

Three F’ rule of disclosure

‘Three F’ rules provide IR targets with corporate information accurately, fair and promptly and acquire investor’s reliance and expectation.

FACT: disclosure based on the fact of management (including risk information)

FIGURE: disclosure based on accurate financial data

FUTURE: disclosure about future corporate vision/strategy

That investor relations is a marketing to create valuation corresponds to shareholder’s profit. That is why top management should participate in IR positively and continuously.

The purpose of IR

The best three purposes of IR are ‘Promotion of understanding about the corporation and business contents’, ‘Conveyance of management strategy and principle’ and ‘Formation of proper share prices’. And ‘Improvement of corporate image’, ‘Finding fans of its own company’ and ‘Stabilization of shareholders’, etc. are following after them. This research result shows that the purposes of IR emphasised on building relationship between corporations and investors. In addition, some purposes include concrete figures related ‘Driving down cost’, ‘Increase of individual shareholders’ and ‘Improvement of credit rating’, etc. to recognise correct corporate evaluation by capital market.

Practical IR activity

Investors require IR information based by ‘Transparency’, ‘Timing’ and ‘Comparative possibility’ to corporations. Therefore, each corporation places importance on production of IR tools to answer the needs, promote corporate understanding and rouse enthusiastic investment. Other IR activities that corporations find important are building good relationship with ‘securities analysts’ who provide investors with necessary information for investment decision by making full use of professional research and analysing ability, and management of information meetings for foreign investors that have high attendance with top executives.

High quality idea and methods in public relations section are needed because all of activities are based on communication.

IR tools ranking best 10

1. Operating report
2. Company profile
3. Press release
4. Internet
5. Supplement data of accounts statement
6. Fact book
7. IR video
8. Shareholder bulletin/letter
9. IR advertisement
10. ?

IR and shareholder meetings

Annual general meetings of shareholders that all executives including the president and shareholders gather together should be the biggest opportunity for IR and communication. However, in practice, there are few chances to speak and attend as shareholders, so shareholders’ distrust is increasing. A shareholder meeting is recognised as a corporate show in USA, that gives priority to corporate governance, and perform a nation-wide meeting tour and a broadcasting meeting in big cities at the same time by its communication satellite to improve communication with shareholders.