The Effect of Investor Relations on Income Objectives and MeetingExpectations Open Access

Abstract

Abstract

The Effect of Investor Relations on Income Objectives and Meeting Expectations By: Marcus Kirk Over a quarter of publicly listed firms employ National Investor Relations Institute (NIRI) members. Yet we know little about the impact of investor relations (IR) for these firms. I examine the role of professional IR in achieving income objectives and influencing managers' financial reporting decisions to meet those objectives. I find companies with NIRI members as employees (IR firms) are more likely to meet analyst forecasts and have smoother earnings. I also find that IR firms rely less on accrual or earnings management to meet analyst forecasts and more on expectations management. Finally, I document that IR firms receive a greater market premium than non-IR firms for meeting analyst expectations. The evidence suggests that while IR may increase the pressure to meet expectations, it also relieves the pressure on firms to use earnings management to meet these expectations.

Table of Contents

TABLE OF CONTENTS CONTENT PAGE

I. DISSERTATION

a.Introduction 1

b.The Role of Investor Relations 5

c.Theory and Hypotheses 8

d.Sample and Research Design 11

i.Sample 11

ii.Estimation Method 13

iii.Outcome Variables 15

e.Empirical Results 18

i.Propensity Score Matching 18

ii.IR, Analyst Following, Institutional Ownership and Stock Market Characteristics 22

iii.Income Objectives 23

iv.Earnings Management to Meet Analyst Expectations 24

v.Expectations Management 27

vi.Stock Market Reaction to Meeting/Missing Analyst Expectations 31

vii.Earnings Management to Avoid Losses 33

f.Additional Analyses 35

i.Survivorship 35

ii.The Effect of Matching on Additional Variables of Interest 37

iii.The Effect of IR Incremental to the Change in Disclosure 38

iv.Matching With / Without Replacement 39

g.Conclusion 41

h.References 44

II. FIGURES

a.Figure 1: Propensity Score Density for IR and Non-IR Firms 49

b.Figure 2: Control Variable Distributions between IR and Matched Non-IR firms 50

c.Figure 3: Survivorship Rates of IR and Non-IR Firms 52

III. TABLES

a.Table 1: Sample Selection 53

b.Table 2: Descriptive Statistics and Logit Propensity Score Regression 54

c.Table 3: IR and Non-IR Firm Descriptive Statistics Before and After Matching 56

d.Table 4: Analyst Following, Institutional Ownership, and Stock Market Characteristics 58

e.Table 5: Differences in Income Objectives 59

f.Table 6: Earnings Management to Meet Analyst Expectations 60

g.Table 7: Expectations Management to Meet Analyst Expectations 61

h.Table 8: Stock Market Reaction to Meeting/Missing Analyst Expectations 63

i.Table 9: Earnings Management to Avoid Losses 65

j.Table 10: Exploratory Survivorship Analysis 67

k.Table 11: Other IR and Non-IR Firm Descriptive Statistics Before and After Matching 70

l.Table 12: The Effect of IR Incremental to the Change in Disclosure 71

m.Table 13: Matching Without Replacement 74

IV. APPENDICES

a.Appendix A: Propensity Score Matching 80

b.Appendix B: Variable Definitions 84

About this Dissertation

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School	Laney Graduate School
Department	Business
Degree	PhD
Submission	Dissertation
Language	English
Research Field	Business Administration, General Business Administration, Accounting Economics, Finance
Keyword	analyst coverage capital markets investor relations expectations management earnings management
Committee Chair / Thesis Advisor	Barton, Jan, Emory University Waymire, Gregory, Emory University
Committee Members	Wang, Xue, Emory University Demerjian, Peter, Emory University

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