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Investor Relations and Corporate Reporting

An empirical analysis of 10-DAX companies

Masterarbeit 2008 147 Seiten

BWL - Investition und Finanzierung

Leseprobe

List of Contents

List of Contents

List of Figures

List of abbreviations

1 Introduction
1.1 Executive Summary
1.2 Scope of Work

2 Problem and Research
2.1 Problem Definition
2.2 Relevance and Motivation
2.3 Methodology

3 General basics
3.1 Corporate Reporting
3.1.1 Definition
3.1.2 Concept and objectives
3.1.3 Function and requirements
3.1.4 Forms of embodiment
3.1.5 Chances and risks
3.2 Investor Relations
3.2.1 Definition, concept and history
3.2.2 Tasks and objectives
3.2.3 Communication policy objectives
3.2.4 Financial objectives
3.2.5 Target groups
3.2.5.1 Private investors
3.2.5.2 Institutional investors
3.2.5.3 Multipliers
3.2.6 Instruments
3.2.6.1 Impersonal measures
3.2.6.1.1 Obligatory measures
3.2.6.1.2 Voluntary measures
3.2.6.2 Personal measures
3.2.6.2.1 Obligatory measures
3.2.6.2.2 Voluntary measures
3.3 Organization
3.4 Performance measurement

4 Relevant Theories
4.1 Principal Agent Theory
4.2 Transaction Cost Theory

5 Empirical study on Investor Relations and Corporate Reporting
5.1 Theory of the empirical study
5.1.1 Conception of the survey
5.1.2 Definition of the survey target
5.1.3 Identification of population and sample
5.1.4 Questionnaire design
5.1.5 Pretest
5.1.6 Data analysis
5.2 Findings
5.2.1 Investor Relations
5.2.2 Corporate Reporting

6 Conclusion, critical comments and outlook

Bibliography

Literature - Monographs

Literature - Collected Edition

Literature - Journals

Literature - Internet

Appendix
Appendix I - DAX-companies
Appendix II - Questionnaire
Appendix III - Cover letter

Declaration in lieu of oath

List of Figures

Figure 1 - Research methods overview

Figure 2 - From financial statement reporting to Corporate Reporting

Figure 3 - Calculation of Shareholder Value according to the DCF-method

Figure 4 - Corporate Reporting in the process of Shareholder Value

Figure 5 - Best practice model of Corporate Reporting

Figure 6 - Investor Relations process

Figure 7 - Results of Investor Relations benchmark 2006

Figure 8 - Investor Relations objectives

Figure 9 - Investor Relations target system

Figure 10 - Communication policy objectives

Figure 11 - Image within a frame of a complex influence structure

Figure 12 - Financial objectives

Figure 13 - Investor Relations target groups

Figure 14 - Characteristics of private investors

Figure 15 - Name share vs. bearer share

Figure 16 - Characteristics of institutional investors

Figure 17 - Instruments of Investor Relations

Figure 18 – Common components of an annual report

Figure 19 - Best annual reports 2007

Figure 20 - Investor Relations instruments according to Investor Relations target groups

Figure 21 - Internal interfaces of Investor Relations

Figure 22 - Investor Relations as subdivision of other functions

Figure 23 - Investor Relations as an original management function

Figure 24 - Investor Relations department with direct appropriation to the management

Figure 25 - Criteria for share market-oriented performance measurement

Figure 26 - Criteria for publicity-oriented performance measurement

Figure 27 - German stock exchange

Figure 28 - Investor Relations strategy

Figure 29 - Investor Relations organization (1)

Figure 30 - Investor Relations organization (2)

Figure 31 - Importance of Investor Relations targets

Figure 32 - Importance of Investor Relations target groups

Figure 33 - Importance of Investor Relations instruments

Figure 34 - Frequency of Investor Relations measures p.a.

Figure 35 - Shareholder’s structure - private: institutional

Figure 36 - Frequency of shareholder’s analysis

Figure 37 - Importance of Investor Relations topics

Figure 38 - Performance measurement of Investor Relations activities (1)

Figure 39 - Performance measurement of Investor Relations activities (2)

Figure 40 - Anticipated development of Investor Relations activities

Figure 41 - Impact of Investor Relations activities on the share price

Figure 42 - Market overview

Figure 43 - Value-added activities

Figure 44 - Financial Key Performance Indicators

Figure 45 - Application of cause-and effect chain (1)

Figure 46 - Application of cause-and-effect chain (2)

Figure 47 - Future approaches of external reporting

Figure 48 - Corporate Reporting challenges

List of abbreviations

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1 Introduction

1.1 Executive Summary

Nowadays, deregulated and globalized financial markets force companies into competition for investors. The challenges capital market-oriented companies have to meet are increasing information needs of investors and rigid rules and regulations. Well implemented and managed Investor Relations and Corporate Reporting activities that gain the trust of the financial market could assist in facing up to competition.

Financial and Corporate Reporting is all about communicating the long-term strategic alignment, quality and experience of the management as well as other factors that determine the value of the company, e.g. a sustainable, solid business development associated with a transparent corporate communication. From investor’s and analyst’s points of view, which are geared to a forward-looking approach in case of an investment decision, the information value of traditional and predominately retrospective financial statements encounters its limits.

The ambition of legislator and standard setter to make the group management report to a value- and future-oriented instrument is a signpost in the right direction. The group management report should additionally facilitate estimates about the future development of the company by a stronger consideration of the management’s view. Numerous empirical studies provide evidence that the capital market is affected by imperfect and unequally distributed information (asymmetric information distribution) as well as by conflict of objective and interest between the management (agent) and shareholder (principal).

Modern Investor Relations and Corporate Reporting activities go beyond the mere communication of facts and figures. Investor Relations and Corporate Reporting reduce skepticism and create transparency by building up a direct relationship to the investor.

The present master thesis examines interdependencies between companies and investors as well as the organizational integration in the company’s structure by means of scientific theories. In addition, a primary research of 10-DAX companies regarding their Investor Relations and Corporate Reporting activities ascertains how several communication measures are effectively applied in practice and how much importance companies attach to well managed capital market communication.

The survey reveals strengths and weaknesses of today’s capital market communication and outlines future prospects of Corporate Reporting.

1.2 Scope of Work

The present master thesis “Investor Relations and Corporate Reporting - An empirical analysis of 10 DAX-companies” is structured into six chapters. It starts with the introduction which includes the executive summary and the scope of work that is realized in here.

The second chapter deals with a detailed definition of the problem that causes the relevance of this master thesis, the determination of the objectives as well as the methodology that describes the assignment’s structured procedure.

Chapter three provides the fundament on which the theme of the thesis may then be developed and elaborated. The general basics on Investor Relations and Corporate Reporting should offer the reader the opportunity for a first step into the topic.

Chapter four is focused on the relevant theories of Investor Relations and Corporate Reporting. At this juncture in particular the neo-institutional theory including the principal agent and the transaction cost theory is being analyzed. A determination is made to what extent the theories are applicable to explain Investor Relations and Corporate Reporting activities.

In chapter five a primary research is realized that reflects the findings of the previous chapters and introduces the results of the survey of 10- DAX[1] companies regarding their Investor Relations and Corporate Reporting activities. This chapter covers the theory of the empirical study including all relevant aspects of the survey, e.g. the conception, the definition of the survey target, the identification of the population and sample and the questionnaire design. It also contains the data analysis of the empirical study and exhibits the knowledge gained verbally and graphically as well as outlines the findings for Investor Relations and Corporate Reporting.

Finally, the results of this master thesis are summarized; especially whether the set objectives are reached as well as critical comments about the master thesis are given in the last chapter. Furthermore, an outlook about possible future effects of applied Investor Relations and Corporate Reporting is provided.

2 Problem and Research

2.1 Problem Definition

Investor Relations contains the strategic management of capital market oriented communication measures with the intention to contribute to the attainment of the main targets of listed companies.[2] Since the nineties the Shareholder Value concept dominates the discussion regarding the corporate target orientation in theory and practice. The corporate value enhancement is a top priority of the management and fixed in the corporate target system. Shareholders should participate in market profits and dividend distribution. Therefore, value-oriented management requires a sustainable and risk adjusted rate of return for the capital provider.[3]

Against the background of liberalization and deregulation of the capital markets, investors have multitude of investment opportunities available which they can selectively and critically use. The companies are exposed to an intensified competition for equity capital due to the macro-economic environment.[4]

This is also expressed in the increasing information needs of investors. Professional investors in particular ask for detailed corporate information and high transparency in corporate financial reporting in order to accomplish an appropriate assessment regarding return and risk of the investment.[5]

The assessment of the enterprise value by investors is besides all fundamental valuation factors highly determined by the level of recognized information asymmetries.[6]

In order to continue providing equity capital, Investor Relations undertake the task of reducing existing interest divergences as well as decreasing information asymmetries by quantitative and qualitative optimal communication policy. In this manner only, an appropriate market capitalization of the corporate is possible.[7]

Despite the knowledge regarding the importance of an effective capital market communication the management consultancy PricewaterhouseCoopers assert in an international study that the annual report, one of the key Investor Relations instrument, is of limited efficiency for the investors regarding a precise assessment of the enterprise value.[8] Annual reports have several weaknesses with regard to value-based management. There is enhancement potential in terms of transparency of analysis and forecasts due to the fact that many companies give detailed report on historical figures instead of giving an indication towards the strategic orientation and corporate objectives. In addition, companies avoid comparing actual with released budget figures. But both are essential for good capital market communication. Hence, the significance and the relevance of effective rules and regulations regarding the financial reporting are decreasing.[9] In addition, the relation between the market value of a company and the key financial balance sheet figures (earnings, cash flow and book value) is increasingly eroded. Particularly in a multitude of knowledge-based, technology and innovation-oriented companies the difference between the book value and market capitalization is considerable. The assessment of the enterprise value by the capital market differs significantly from the enterprise value which results from the balance sheet. The conclusion that follows from this is that the financial reporting as official corporate communication interface to the capital market has material deficits and inadequately supports external assessment procedures.[10]

Against this background, a conceptual realignment of Investor Relations should be forced which allow for an adequate value assessment according to the true and fair value. A theoretical contextual examination of a new paradigm called Corporate Reporting is therefore given in the present master thesis.

2.2 Relevance and Motivation

Public companies need common stockholders in order to finance their growth. Common stockholders in turn need public companies for their financial investment. A precondition to a win-win-situation in proportion company/stockholder is amongst others the trust of the stockholders in the management competence to gain an appropriate return on investment and respectively to increase the company value respectively. This trust increases particularly through reliable and relevant information about corporate activities. A relevant Corporate Reporting should follow the information requirements from a stockholder’s point of view. That means that companies should release information which stockholders need for their investment decision.

In order to assure the investors satisfaction, comparable with customer relationship management, the companies should make decision-relevant information available. Hence, Investor Relations instruments are subject to continuous improvement in order to allow for changing requirements. So as to disclose the current status and the future requirements of Investor Relations in German listed companies, this master thesis determines e.g. the following questions regarding Investor Relations:

- What is Investor Relations trying to achieve?
- What opinions exist for the positioning of Investor Relations activities in the entire business organization?
- How many financial and personnel resources for Investor Relations resources are available each year?
- How many times and where are different Investor Relations measures used in the company?
- Are there any controlling measures regarding Investor Relations activities?
- To what extent are Investor Relations measures supposed to affect the stock price?
The current status and future requirements of Corporate Reporting activities in German listed companies are determined by the following questions:
- Which information is used for the internal decision making and management of the business?
- Which information is thereof reported external?
- What is the current status of Corporate Reporting activities?
- What are future challenges for Corporate Reporting?

The increasing information needs of stockholders require a stronger orientation of business enterprises towards optimized Investor Relations and Corporate Reporting activities in order to finance their growth and therefore to create a lasting added value for the enterprise.

In order to meet these requirements, the primary objective of this assignment is to reveal and underline the importance of well implemented and managed Investor Relations and Corporate Reporting activities for corporate success.

2.3 Methodology

In general, data researches are clustered into two groups:

- Secondary Research
- Primary Research

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Figure 1 - Research methods overview[11]

On the one hand, the secondary research is based on already existing literature. “Secondary research is information that already exists somewhere, having been collected for another purpose”.[12] There are a range of resources available for secondary research. Secondary data is of great importance as the information is comparatively inexpensive and accessible especially in relation to the time exposure.[13] For the purpose of obtaining secondary data for this master thesis many databases, literary sources and internet investigations were conducted.

The primary research or the so-called field research raises data and information on the market originally - starting point for the data collection is the origin the source of facts and opinions. Primary research is research that is tailored to a company’s particular needs.[14]

There are five common methods to gain information about the targeted market: observation, focus groups, surveys, behavioural data and experiments.[15] This assignment is limited to surveys due to the fact that this approach is most appropriate for gathering descriptive information.

Due to the fact that there is no need to choose either secondary or primary research, this master thesis is both based on both secondary and primary research.

Accounting scandals and collapses of companies have made capital markets insecure in terms of the reliability of corporate information.

Today, increasing information requests of capital market participants are the main developments which cause the growing importance of good Investor Relations and Corporate Reporting.

In addition, the objectives of this assignment are defined: the explanations about the significance of Investor Relations and Corporate Reporting, the status quo and development trends as well as an identification of room for improvement.

3 General basics

3.1 Corporate Reporting

3.1.1 Definition

Generally speaking, Corporate Reporting can be defined as the sum of management’s communicative measures to notify investors about corporate prospects. Why investors and creditors need this information is obvious: On this basis and on the basis of additional information from other sources future cash flows can be anticipated. These cash flows determine the value which investors and creditors attach to the company. This means that via Corporate Reporting the management communicates information in order to provide the elements of evidence for the valuation of the company.[16]

Traditionally, the financial statement served as main communication medium. However, researches from the American Institute of Certified Public Accountants (AICPA)[17] inter alia show that the financial statement could not meet all information needs of the capital market. Accounting rules are rigid and an adjustment to the individual corporate situation is hardly possible. The financial statement is merely an image of the history and therefore future prospects are difficult to anticipate. Hence, the AICPA demand a financial statement reform on the one hand and on the other hand demand that besides the financial statement an extended approach should be applied - Corporate Reporting. Next to financial information out of the financial statement, Corporate Reporting also comprises non-financial future-oriented performance indicators.[18]

For the purpose of clarification the following figure exhibits the difference between Financial Reporting and Corporate Reporting that is demanded from the AICPA.[19]

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Figure 2 - From financial statement reporting to Corporate Reporting[20]

Terms that are also frequently used in this context are Value-based Reporting, Value Reporting, Value-added Reporting, and Business Reporting, Capital Market Reporting as well as Capital Market Communication.[21]

Within the scope of this master thesis the term Corporate Reporting is used synonymously to the above mentioned terms. In general, Corporate Reporting is thus equated with value-oriented reporting and coverage of the value-oriented management- and controlling-system.[22]

3.1.2 Concept and objectives

The concept of Shareholder Value forms the basis for the development of Corporate Reporting.[23] Shareholder Value describes an approach which comprises the main objective of the management; the maximization of the corporate market value, i.e. a value-oriented management.[24] In the case of a capital market orientation the objective is the maximization of the share price accordingly. The enterprise value is finally determined by long-term cash inflows which are available for profit distribution to the investors.[25] Future anticipated cash-inflows are discounted to their present value. The applied interest rate should be equal to the costs of capital which result from the weighted average costs of equity and debt.[26] As a result the company aims at a maximization of the capital value for investments to be accomplished.[27]

The following figure graphically shows the calculation of the Shareholder Value according to the DCF-method including the calculation of the Free Cash Flow and Weighted Average Cost of Capital (WACC).[28]

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Figure 3 - Calculation of Shareholder Value according to the DCF-method[29]

From the investor’s point of view, the enterprise value which results from the current share price represents a part of their assets. The reason for the management’s emphasis on pursuing this objective is the evidence of acting in the interest of any shareholder. The consequential less consideration of interests other target groups (stakeholder) is in fact occasionally criticized but due to their divergent fields of interest no operational indicators can be derived for the management.[30]

A high share price will lead to a cheap raise of equity capital that in turn decrease the weighted average costs of capital and make future value creation easier. Furthermore, sufficient equity capital is an essential condition for taking out long-term loans. If the risk for creditors can be minimized in this manner costs of debt are also decreasing accordingly. The reduction of costs of capital constitutes an important implication for the Shareholder Value concept.[31]

The concepts of Shareholder Value as well as a Corporate Reporting are mutually dependent. In order that capital market participants notice internally created values this value enhancement and its impacts on the enterprise value has to be communicated to capital market actors by means of a value-oriented reporting.[32]

The following illustration summarizes the main aspects of Corporate Reporting and Shareholder Value.

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Figure 4 - Corporate Reporting in the process of Shareholder Value[33]

3.1.3 Function and requirements

Thus, the concept of Corporate Reporting encompasses the reduction of information asymmetries between the management (agent) and current or potential capital provider (principal). Furthermore, Corporate Reporting also contributes to a better assessment of the enterprise value from a third party point of view.[34]

According to Labhart Corporate Reporting is defined as follows: Corporate Reporting is an official, external corporate reporting that is (1) appropriate to reduce information asymmetries between the internal and external view of the Value Based Management and (2) is part of the Value Based Management.[35]

3.1.4 Forms of embodiment

A reduction of information asymmetries between the management and the investors is only possible if the management will publish especially such company information which is of high interest for the capital market. Within the frame of legal disclosure requirements companies often make these information available in a insufficient way.[36]

As one of the weaknesses of voluntary Corporate Reporting is therefore the missing standardization or validation by an independent third party, e.g. public accountants.[37] For this reason, it is supposed to take elements of Corporate Reporting into the financial statement which are subject to legal obligation to review by the public accountants. In Germany information in the financial statement or notes are subject to an audit by public accountants. On the other hand, proposals regarding a better standardization on a voluntary basis are offered.[38]

The problem of taking elements from Corporate Reporting into the normalized financial reporting is that the corporate signalling function gets lost in those companies that obligate themselves to an extended value-oriented reporting.[39]

However, there are various trials to formulate reporting models respectively minimum contents of Corporate Reporting based on the information needs of different addressees. PricewaterhouseCoopers[40], an auditing and consulting services organization, developed a Corporate Reporting model which is composed of four elements. These four elements constitute the informational structure for all communicative activities towards the capital market.[41] The best-practice model regarding Corporate Reporting is illustrated in the following figure.

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Figure 5 - Best practice model of Corporate Reporting[42]

The best-practice model aims at revealing medium-term corporate prospects by defining, measuring and communicating value-oriented target indicators. The first element, the market overview, should give the information addressee a review about the current market situation. Besides industry trends and developments (chances/risks) the macro-economic, regulatory and competitive environment are important performance indicators. From an investor’s point of view, the market share and market growth are key indicators in order to estimate the future performance of the corporate. After outlining the market environment the corporate can argue its strategic orientation designed to suit the market environment. The point with the value strategy is the presentation how the particular measures generate long-term value added. In the third element, managing for value, companies are required to explain the specific corporate realization of the Shareholder Value concept as well as the applied procedural methods (DCF, EVA etc.).[43]

The focus of the fourth element, value platform, is on specific measures and measure programs which should force the value enhancement of specific business areas. In order to allow for performance measurement, quantifiable requirements for tangible and intangible assets should be integrated in the measuring system. A quantification of all information is however unrealistic and uneconomic taken cost-benefit consideration into account.[44] At least there should be transparent evaluation criteria for any individual measure in order to comprehend progress and improvements. It also holds true that the performance indicators in the value platform element of the Corporate Reporting model of PWC are mainly of intangible nature. For the Corporate Reporting model the communication of intangible performance potentials is just as much important as the preceding question about the selection, accurate measurement and preparation of these factors.[45]

3.1.5 Chances and risks

An informative enhanced Corporate Reporting provides listed companies the opportunity to keep records regarding the management’s consistent Shareholder Value orientation. In this manner, those companies have also the opportunity to distinguish themselves on the capital market. However, with the increasing transparency there is also bad risk for the corporate due to the fact that not only strengths but also weaknesses have to be communicated.[46] The convenience of a transparent reporting is therefore controversial discussed.[47]

The advantages are taken up again shortly because there were already described in detail in the previous chapters. Primarily, the advantage of reducing the costs of capital is to mention. In addition, the costs of information seeking for the investors can also be decreased when the corporate is able to provide the relevant information with a comparative cost advantage.[48]

Furthermore, an approximation from internal to external reporting can be accelerated. Synergy effects result from the convergence of the systems which can cause an increase in Shareholder Value.[49] In this context, the management consultancy Accenture has account for a reduction of finalizing consolidated accounts from 40 to 50% and a cost reduction regarding the information seeking of more than 25% with rising quality.[50]

In consideration of Corporate Governance[51] Corporate Reporting is a central element of Investor Relations due to the fact that information asymmetries between the owner and the management can be reduced. Corporate Reporting as an information optimized and asymmetries reduced measure lead to a reduction of agency costs. Clear information signals of the company with little scope of interpretation allow for an efficient assessment of the management’s performance by investors. Monitoring costs can be reduced caused by a transparent reporting.[52]

3.2 Investor Relations

3.2.1 Definition, concept and history

Investor relations can be characterized as communication with actors in the capital market. The relationship between a joint stock company and investors or multipliers is of a long-term nature and makes use of a host of various tools and instruments – depending upon the communications partner.[53]

North America’s National Investor Relations Institute (NIRI) offers the following definition of Investor Relations:

„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, which ultimately contributes to a company's securities achieving fair valuation."[54]

Investor Relations has its origins in the philosophy of protecting investors and creditors. Enterprises have been addressing the topic of Investor Relations in the USA for decades now. Laws and regulations in the USA were reformed in the 1930s to prevent insider knowledge or deliberately misleading information. The Securities Act of 1933 and the Securities Exchange Act of 1934 made the idea of publicity a cornerstone of securities laws and regulations in the United States of America – to protect investors.[55]

Investor Relations is considered to have been conceived in 1953. A corporation, namely General Electric, institutionalized its communication with shareholders for the first time in that year under the title of “Investor Relations”.[56] In the following years the Investor Relations idea only diffused slowly, even though, as several PR agencies drove up the share prices of their customers with unprofessional practices. The ensuing loss in credibility led Investor Relations professionals to establish the National Investor Relations Institute (NIRI) and rules for Investor Relations (in a „Code of Ethics"[57] ) in 1969.[58] In the following period, Investor Relations management spread at a steady pace in the USA.[59]

The first steps taken in the direction of Investor Relations in Germany came in the 1980s. Higher share prices, brought up through improved earnings of German enterprises and rising share prices on foreign exchanges, boosted the attractiveness of stock shares as a financing instrument. The need for investment, which could no longer be covered by equity, helped a rethinking take place in German enterprises in the direction of Investor Relations.[60] BASF e.g. was the first enterprise in Germany who makes Investor Relations part of their company policy and created an own department.[61]

The increased attention enterprises focused on the finance markets and investors is also illustrated by the founding of the Deutscher Investor Relations-Kreis (DIRK) in 1990.[62] Its purpose and aim was to improve the quality of its members’ relations with investors in Germany and other countries and to promote the interests of Investor relations work nationally and internationally. This association, which has been registered since 1996, has now more than 200 German enterprises as members. Its members are not only enterprises listed on the DAX exchange, but also include numerous mid and small caps as well as companies which have not yet gone public.[63]

Summarizing the above mentioned aspects, Investor Relations comprise an integral process that targets long-term confidence on the capital market and a fair value of the share price. The integral Investor Relations process is shown in the following figure:

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Figure 6 - Investor Relations process[64]

The importance of Investor Relations activities is also reflected in the following benchmark study from NetFederation Interactive Media GmbH in 2006. The study forms an opinion about the online appearance of all listed companies in the DAX, MDAX and SDAX. NetFederation assigned scores for 220 criteria in the categories story, service, technology and design. The winner of the 2006’s study was Deutsche Post AG followed by Bayer AG and BASF AG. An overview about the top 20 companies according to the benchmark study is given in the following figure.[65]

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Figure 7 - Results of Investor Relations benchmark 2006[66]

3.2.2 Tasks and objectives

In addition to meeting statutory provisions which primarily emanate from the Aktiengesetz (Stock Corporation Act) and the Börsengesetz (Stock Exchanges Act), the most important task of Investor Relations is information. Thus, for example, changes in and involving the enterprise must be disclosed to investors in an open manner without omission. Especially important, is the communication exchanged between shareholders, the financial community and the corporation. The information policy of the enterprise should by the same token be transparent and investor-oriented.[67]

The code of conduct formulated by the members of the DIRK sets out the following objectives of Investor Relations: supporting capital market relations with the aim of fostering optimum financing of the enterprise by reducing equity and loan capital costs.[68] To be able to meet this objective it is necessary to establish a large number of secondary Investor Relations objectives. These objectives have to be formulated in such a manner that they serve the primary company objective.[69]

Thus, the shareholder value, for example, may be a primary company objective. A market value for the individual share, which is as great as possible is to be attained in order to ensure that shareholders’ needs are met to the greatest possible extent. The second important possibility for a primary target is corporate governance. An agreement on joint interests between management and shareholders is sought in order to boost the performance of the enterprise and thus generate profits and maintain and create jobs. These two objectives are usually of equal importance in the pursuit of the primary aim of the enterprise. Hence, a value-oriented company management which also has an impact on the share value is preferred. This increase in share value must also be communicated, as it otherwise will lead to information deficits. Investor Relations performs this task. Nevertheless, it should also be involved in an active value-optimization process, as it is a connecting element between the enterprise and the financial community. Suggestions and demands of investors can thus, for example, have an impact on the company strategy.[70]

Minimization of information deficits while taking the interests of the capital market into account are accordingly of tremendous importance in the establishment of the supreme objective of Investor Relations. Finally, it can be said that secondary objectives are to be set and operationalized in order to attain the primary objective. The implementation of communications-policy objectives by the same token serves as the basis for the realization of financial objectives.[71]

Within this context Investor Relations targets are distinguished in primary objectives and secondary objectives. Secondary objectives are subject to a higher level of concretion than primary Investor Relations objectives. The secondary objectives should especially support the primary objective, the long-term maximization of the share price. The relationship between the Investor Relations targets particularly becomes apparent in the following corporate target hierarchy.

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Figure 8 - Investor Relations objectives[72]

In the following communication policy objectives and financial secondary Investor Relations objectives are differentiated and exemplified.

3.2.3 Communication policy objectives

Information deficits and thus gaps in value can be eliminated and the true value of an enterprise ultimately shown by means of a resolute information policy. This all-encompassing communication of the increased value of an enterprise can cause the share price to rise or lead to a fair valuation of the share on the stock exchange. This is only possible, however, if there is in particular a continuous and above all target group-oriented information policy. This improvement in the information standard can also correct erroneous information or avoid it right from the start.[73]

It is especially important for the enterprise to be correctly positioned in its sector to avoid being incorrectly classified and hence compared with the wrong peer group. By the same token it should be ensured that awareness of the enterprise is raised and a positive image is established, as more potential investors can be addressed in this manner, thus facilitating access to capital.[74]

The creation of trust and confidence in the financial community (please also see the following figure) is of tremendous importance in the implementation of the above objectives. To achieve this, it is crucial for the enterprise to deal with negative information in an open and honest manner and to communicate this. Trust and confidence is a great advantage especially during periods of crisis.[75]

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Figure 9 - Investor Relations target system[76]

Consequently, a continuous dialogue and constant efforts to communicate at a consistently high level are necessary.[77]

The following illustration summarizes communication policy objectives. Following this, some selected communication policy objectives (boosting awareness of the enterprise, creating trust and confidence and an improvement in the company image) are discussed in more detail.

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Figure 10 - Communication policy objectives[78]

The aim of boosting awareness of the enterprise, for example, provides the basis to achieve certain finance goals. A greater awareness of the company allows, for instance, a better diversification of shareholdings, as better-known companies can better place their shares on German and foreign exchanges.[79] Moreover, a high level of awareness creates additional potential demand for the products and services of an enterprise. It is also easier for well-known companies to recruit qualified personnel. The additional potential demand and qualified personnel once again influence company profits and thus have an impact on the objective of maximizing the share price. It is especially endeavored to boost awareness of the enterprise in other countries, as companies which do not produce there have a poorer public image.[80]

As already mentioned above, building trust and confidence is also considered to be a crucial secondary objective of Investor Relations management, as both maximization of the share price as well as almost all other objectives of Investor Relations depend on what degree of trust and confidence is placed in the enterprise by the financial community. Trust and confidence of investors in the management of an enterprise is of such great importance because the success of the share business is subject to considerable uncertainty. Hoped-for earnings of investors increase with successful generation of additional trust and confidence in the management of an enterprise. A high level of trust and confidence on the side of the financial community in the honesty and competence of the company’s management increases the willingness of investors to buy the company’s stock. It must be taken into account, however, that trust does not come about all of a sudden, but rather has to be built up continuously over a period of time. The trust and confidence prevailing between the company and the financial community, on the other hand, can be shattered very quickly.[81]

An improvement in the public image of the company (please also see the following figure) is especially supposed to make investors feel like they made the right decision in investing in the company. The goal of improving the company image, however, also has an impact on the attainment of other goals. An improved image influences the shareholders’ structure, which among other things has an effect on the risk and thus the equity capital costs of the enterprise. Beyond this, it influences the rating and, with it, the costs of loan capital to a company.[82]

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Figure 11 - Image within a frame of a complex influence structure[83]

[...]


[1] DAX is the blue-chip index of Deutsche Börse. It includes the largest German securities in terms of market capitalization and order book turnover from classic and technology sectors which are admitted to the Prime Standard segment of the Regulated Market. Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. http://deutsche-boerse.com/dbag/dispatch/en/kir/gdb_navigation/listing/10_Market_Structure/31_auswahlindizes/10_DAX; as at 30.03.2008.

[2] Cf. Hartmann, H. K. (1968), pp. 131; Link, R. (1991), pp. 6.

[3] Cf. Achatz, H. (1998), pp. 15; Labhart, P. A. (1999), pp. 22; Siersleben, K. (1999), pp. 15.

[4] Ibidem.

[5] Cf. Dürr, M. (1995), pp. 22; Kötzle, A. / Niggemann, M. (2001), pp. 634; Volkart, R. / Labhart, P. (2000), pp. 149.

[6] The problem of information asymmetries can only be solved in the neoclassical research program. The neoclassical research program assumes that there are only perfect markets which are characterized by missing transaction costs and complete information of all market participants. Please also see chapter 4.

[7] Cf. Drill, M. (1995), pp. 53; Dürr, M. (1995), pp. 1; Günther, T. / Otterbein, S. (1996), pp. 397; Kirchhoff, K. R. (2005), pp. 32.

[8] Cf. Eccles, R. G. / Herz, R. H. / Keegan, E. M. / Philllips, D. M. H. (2001), pp. 3. Only 19% of the respondent investors and 27% of the respondent analysts are of the opinion that annual reports are useful in communicating the true value of companies.

[9] Cf. Labhart, P. A. (1999), pp. 22.

[10] Ibidem.

[11] Cf. Kotler, P. / Wong, V. / Saunders, J. / Armstrong, G. (2005), p. 346; Meffert, H. (2000), pp. 154.

[12] Kotler, P. / Wong, V. / Saunders, J. / Armstrong, G. (2005), p. 346.

[13] Cf. Kotler, P. / Wong, V. / Saunders, J. / Armstrong, G. (2005), p. 346; Meffert, H. (2000), pp. 154.

[14] Cf. Berekoven, L. / Eckert, W. / Ellenrieder, P. (1999), pp. 98.

[15] Cf. Meffert, H. (2000), pp. 154.

[16] Cf. Achatz, H. (1998), pp. 15; Labhart, P. A. (1999), pp. 29; Volkart, R. / Labhart, P. (2000), pp. 151.

[17] AICPA as professional association of certified public accounts in the United States has a major influence on accounting regulations and financial statement reporting. Cf. http://www.aicpa.org/; as at 25.02.2008.

[18] Cf. Labhart, P. A. (1999), pp. 26; http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Accounting+Standards/ibr/chap1.htm; as at 25.02.2008.

[19] Cf. Banzhaf, J. (2006), pp. 128; Labhart, P. A. (1999), pp. 26.

[20] Cf. Banzhaf, J. (2006), p. 171; Labhart, P. A. (1999), pp. 26; http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Accounting+Standards/ibr/chap1.htm; as at 25.02.2008.

[21] Cf. Banzhaf, J. (2006), pp. 125; Kötzle, A. / Niggemann, M. (2001), p. 634; Labhart, P. A. (1999), pp. 29.

[22] Cf. Banzhaf, J. (2006), pp. 125; Drill, M. / Hubmann, M. J. (2005), pp. 400; Günther, T. / Otterbein, S. (1996), pp. 393; Labhart, P. A. (1999), pp. 29.

[23] Cf. Banzhaf, J. (2006), pp. 125; Labhart, P. A. (1999), pp. 29.

[24] Cf. Achatz, H. (1998), pp. 16; Banzhaf, J. (2006), pp. 125; Drill, M. / Hubmann, M. J. (2005), pp. 400; Labhart, P. A. (1999), pp. 29.

[25] Cf. Achatz, H. (1998), p. 17; Rappaport, A. (1999), pp. 39.

[26] Cf. Rappaport, A. (1999), pp. 40.

[27] Cf. Achatz, H. (1998), pp. 16; Banzhaf, J. (2006), pp. 125; Drill, M. / Hubmann, M. J. (2005), pp. 400; Labhart, P. A. (1999), pp. 29.

[28] Cf. Drill, M. (1995), pp. 26.

[29] Cf. Drill, M. (1995), pp. 26.

[30] Cf. Achatz, H. (1998), pp. 15; Banzhaf, J. (2006), pp. 125; Drill, M. (1995), pp. 25.

[31] Cf. Achatz, H. (1998), pp. 16;

[32] Cf. Kötzle, A. / Niggemann, M. (2001), pp. 634; Volkart, R. / Labhart, P. (2000), pp. 148.

[33] Cf. Kötzle, A. / Niggemann, M. (2001), p. 635.

[34] Cf. Kötzle, A. / Niggemann, M. (2001), pp. 636.

[35] Cf. Labhart, P. A. (1999), pp. 29.

[36] Cf. Kötzle, A. / Niggemann, M. (2001), p. 637.

[37] Cf. Kötzle, A. / Niggemann, M. (2001), pp. 634; Labhart, P. / Volkart, R. (2005), pp. 170.

[38] Cf. Kötzle, A. / Niggemann, M. (2001), pp. 634; Labhart, P. A. (1999), pp. 278; Labhart, P. / Volkart, R. (2005), pp. 170.

[39] Cf. Labhart, P. A. (1999), p. 279.

[40] Cf. http://www.pwc.de/portal/pub/aboutus; as at 01.03.2008.

[41] Cf. DiPiazza, S. A. / Eccles, R. G. (2002), p.121.

[42] Ibidem.

[43] Cf. DiPiazza, S. A. / Eccles, R. G. (2002), pp.121.

[44] Cf. Labhart, P. A. (1999), p. 200.

[45] Cf. DiPiazza, S. A. / Eccles, R. G. (2002), pp.121.

[46] Cf. Labhart, P. / Volkart, R. (2005), pp. 173; Volkart, R. / Labhart, P. (2000), pp. 153.

[47] Cf. Drill, M. (1995), p. 98.

[48] Cf. Labhart, P. A. (1999), pp. 223; Volkart, R. / Labhart, P. (2000), p. 154.

[49] Cf. Labhart, P. A. (1999), pp. 223.

[50] Cf. Schuler, A. H. / Pfeifer, A. (2001), p. 17.

[51] “Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.” http://www.icaew.com/index.cfm?route=107498; as at 08.03.2008.

[52] Cf. Volkart, R. / Labhart, P. (2000), p. 155; Chapter 4 of this master thesis.

[53] Cf. Dürr, M. (1995), p. 1; Link, R. (1991), pp. 7; Piwinger, M. (2005), pp. 6.

[54] http://www.niri.org/about/mission.cfm; as at 01.03.2008.

[55] Cf. Günther, T. / Otterbein, S. (1996), pp. 390; Tiffe, P. (2007), pp. 25.

[56] Cf. Dürr, M. (1995), pp. 1; Piwinger, M. (2005), pp. 6; Süchting, J. (1991), p. 15; http://www.niri.org/about/origins_ch1.cfm; as at 01.03.2008.

[57] Cf. Dürr, M. (1995), pp. 193; http://www.niri.org/about/CodeOfEthicsAssocMember.cfm; as at 01.03.2008; http://www.niri.org/about/CodeOfEthicsRegMember.cfm; as at 01.03.2008.

[58] Cf. Dürr, M. (1995), pp. 1; Streuer, O. (2004a), pp. 5; http://www.niri-twincities.org/membership/code-of-ethics.shtml; as at 01.03.2008.

[59] Cf. Streuer, O. (2004a), pp. 5.

[60] Cf. Günther, T. / Otterbein, S. (1996), pp. 390; Ruda, W. / Pfeffer, M. (2003), p. 34.

[61] Cf. Calsow, I. (2004), pp. V.

[62] Cf. Günther, T. / Otterbein, S. (1996), pp. 391.

[63] Cf. Calsow, I. (2004), pp. V; Dürr, M. (1995), pp. 193; http://www.innovations-report.de/html/berichte/wirtschaft_finanzen/bericht-34082.html; as at 01.03.2008; http://www.presseportal.de/text/story.htx?nr=434790&firmaid=38456; as at 01.03.2008.

[64] Cf. Achleitner, A. K. / Bassen, A. (2001), pp. 25; Labhart, P. A. (1999), pp. 23.

[65] Cf. http://www.ir-benchmark.de/ergebnisse.html; as at 10.03.2008.

[66] Cf. http://www.ir-benchmark.de/ergebnisse.html; as at 10.03.2008.

[67] Cf. Achleitner, A. K. / Bassen, A. / Pietzsch, L. (2001), pp. 6; Drill, M. (1995), pp. 53; Günther, T. / Otterbein, S. (1996), pp. 390; Kirchhoff, K. R. (2005), pp. 32; Schmidt, H. (2000), pp. 45; Streuer, O. (2004b), p. 21; http://www.piwinger.de/aktuell/IR-Kommunikationsdisziplin.html; as at 01.03.2008.

[68] Cf. http://www.dirk.org/UeberUns/Berufsgrundsaetze.aspx#2.; as at 01.03.2008.

[69] Cf. Link, R. (1991), pp. 133; Kirchhoff, K. R. (2005), pp. 32; Streuer, O. (2004b), pp. 31.

[70] Cf. Link, R. (1991), pp. 133; Kirchhoff, K. R. (2005), pp. 32.

[71] Cf. Kirchhoff, K. R. (2005), pp. 32.

[72] Cf. Janik, A. (2002), pp. 88.

[73] Cf. Ahlers, S. (2000), p. 29; Drill, M. (1995), pp. 55; Dürr, M. (1995), p. 22; Günther, T. / Otterbein, S. (1996), pp. 393; Kirchhoff, K. R. (2000), pp. 37; Kirchhoff, K. R. (2005), pp. 36.

[74] Cf. Dürr, M. (1995), p. 2; Kirchhoff, K. R. (2000), p. 38; Kirchhoff, K. R. (2005), pp. 36; Streuer, O. (2004c), pp. 47.

[75] Cf. Dürr, M. (1995), p. 6; Kirchhoff, K. R. (2000), pp. 38; Kirchhoff, K. R. (2005), pp. 36; Süchting, J. (1991), p. 10.

[76] Cf. Janik, A. (2002), p. 103.

[77] Cf. Dürr, M. (1995), p. 6; Kirchhoff, K. R. (2000), pp. 38; Kirchhoff, K. R. (2005), pp. 36; Süchting, J. (1991), p. 10.

[78] Cf. Kirchhoff, K. R. (2000), pp. 37; Kirchhoff, K. R. (2005), pp. 36.

[79] Cf. Günther, T. / Otterbein, S. (1996), p. 398; Janik, A. (2002), pp. 89; Streuer, O. (2004c), pp. 47; Tiffe, p. (2007), pp. 31.

[80] Cf. Achleitner, A. K. / Bassen, A. (2001), pp. 30; Janik, A. (2002), pp. 89; Kirchhoff, K. R. (2005), pp. 36; Schmidt, R. (1991), pp. 29; Schumacher, C. / Schwartz, S. / Lüke, S. (2001), p. 34; Streuer, O. (2004b), pp. 34.

[81] Cf. Diehl, U. / Loistl, O. / Rehkugler, H. (1998), pp. 19; Drill, M. (1995), pp. 59; Günther, T. / Otterbein, S. (1996), p. 398; Harenberg, R. (2000), pp. 108; Hartmann, H. K. (1968), pp. 88; Janik, A. (2002), p. 89; Kirchhoff, K. R. (2005), p. 36; Knüppel, H. / Lindner, C. (2001), p. 267; Zieschang, M. (1999), pp. 136.

[82] Cf. Dürr, M. (1995), pp. 36; Hartmann, H. K. (1968), pp. 88; Janik, A. (2002), pp. 100; Schmidt, R. (1991), pp. 29; Zieschang, M. (1999), pp. 136.

[83] Cf. Schmidt, R. (1991), pp. 29.

Details

Seiten
147
Erscheinungsform
Originalausgabe
Jahr
2008
ISBN (eBook)
9783836614399
Dateigröße
923 KB
Sprache
Englisch
Katalognummer
v225865
Institution / Hochschule
FOM Essen, Hochschule für Oekonomie & Management gemeinnützige GmbH, Hochschulleitung Essen früher Fachhochschule – Institut für Ökonomie und Management, Personal- und Finanzwirtschaft
Note
1,7
Schlagworte
investor relation corporate reporting shareholder value financial management

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Titel: Investor Relations and Corporate Reporting