[Research Seminar 2019.06.25] Investor Relations Executives in the Top Management TeamSpeaker : Daewoung Choi
We examine the role of investor relations (IR) executives in the top management team and find that firms incorporating the IR function in their top management team are more likely to beat analysts’ estimates and exhibit more downward earnings guidance. We also provide evidence that these firms manage analysts’ expectations rather than manage earnings and are more likely to have lower analyst forecast dispersion, a lower probability of informed trading, and fewer earning restatements, all of which suggest that IR executives tend to reduce information asymmetry.
Consistent with this, we also find that firms with IR executives experience less capital constraints and lower litigation risk. For identification, we first provide results using a difference-in-difference framework that stock return volatility and idiosyncratic volatility are lower in firms with IR executives following the 2008 financial crisis relative to firms without IR executives. We also document a faster decrease in option market implied volatility following the exogenous shock of the 9/11 terrorist attacks in firms with IR executives in the top management team relative to firms without. Overall, the evidence is consistent with IR executives improving the alignment between management and investors.