An explanatory study of the use of e-mail investor communication by South African listed companies

Abstract

Background: Although research shows that almost all listed companies have corporate websites with dedicated investor relations (IR) sections that enable companies to ‘push’ information to investors, it was argued that such an asymmetrical approach to communication is insufficient for companies wishing to exercise good IR. The purpose of this study was to test the effectiveness of the Internet to act as a mechanism to achieve more interactive communication between companies and investors.

Objectives: The objectives of the study were to measure the responsiveness, timeliness and relevance of companies’ responses to e-mail requests, and to test for the determinants (size, market-to-book ratio, profitability, leverage and liquidity) thereof.

Method: The mystery investor approach and a content analysis were used to study the e-mail handling performance of companies. The associations between company-specific characteristics were statistically tested.

Results: It was found that the e-mail handling performance of companies in this study was poor compared with previous studies. Significant relationships between company size and responsiveness and relevance, and between market-to-book ratio and relevance were reported, as well as between the contact method used to request information and relevance and the use of social media and timeliness.

Conclusion: Specific areas where companies could improve their investor communications were identified. The need for further research was discussed to explain some of the relationships found, as well as those not found, in contrast to what was expected. Future research is warranted to examine the relationship between the e-mail handling performance of companies and information asymmetry and the cost of equity of companies.