This paper develops an interdisciplinary conceptual framework demonstrating the role of marketing in managing investor relationships. The framework illustrates how companies can turn investor relationships into market-based assets by analyzing and managing them from a relationship marketing and stakeholder perspective. Marketing can contribute to investor relationship management and increase shareholder value by lowering the cost of equity capital, increasing analyst coverage and stock liquidity, and reducing shareholder activism. An investigation among investor relations professionals working at publicly traded companies in the Euronext 100 stock index demonstrates the framework's empirical validity and provides managerial implications.
Intangibles under marketing control, like customer equity, constitute an increasing proportion of firm value (Lukas et al., 2005) and empirical studies show a positive link between managing such marketing assets and stock market performance (Srinivasan and Hanssens, 2009). The notion of market-based assets integrates existing but often overlooked linkages between marketing and the firm's financial well-being (Srivastava et al., 1998). By employing internal resources, firms create assets that materialize as value through interactions with entities in the external environment. Market-based assets are either intellectual or relational: This study focuses on the latter type. According to the resource-based view, organizations engage in partner relationships to effectively and efficiently pool scarce resources and create a relation-based competitive advantage (Morgan and Hunt, 1999). Investment capital is one such key resource. Nurturing the relationships with its providers – investors – should therefore receive considerable attention from the corporation in general, and its marketers in specific.
Although marketing's conceptual and methodological approaches are applicable to this exchange relationship (Lovett and MacDonald, 2005), the shareholder as a relational marketing group remains largely neglected. This is surprising, since shareholders ultimately bear the cost of marketing's decisions. As such, they (should) have a significant impact on marketing strategy (Srinivasan and Hanssens, 2009), and be represented amongst marketing's key external stakeholders (cf. Srivastava et al., 1998). Investor relations (IR) initiatives drive shareholder value by enhancing demand for a firm's shares, lowering cost of capital (Botosan, 2006), increasing stock liquidity (Healy et al., 1999), and enhancing analyst following (Francis et al., 1997). Studying their management represents a key research opportunity for the marketing discipline (Hanssens et al., 2009).
As a strategic management responsibility, IR integrates finance, communication, and marketing (NIRI, 2008). Existing literature, however, is scarce and regards IR as either the financial end of the communications function (Regester, 1990) or the communications end of the financial function (Dolphin, 2004). By focusing exclusively on financial communication (Marston and Straker, 2001), current literature ignores the complementary role of marketing, despite its insights and skills relevant for managing investor interactions (Lovett and MacDonald, 2005). Financial information communication is a necessary but not sufficient condition for managing investor relationships. Recent literature, for example, shows that besides expected returns, also non-financial dimensions, like investors' identification with a company, influence their behavior (Aspara and Tikkanen forthcoming).
This study proposes that to analyze and manage investor relationships successfully, marketing insights must complement existing management and IR literature. This study shows how the relationship between a company and its shareholders may be analyzed and managed from a relationship marketing and stakeholder perspective, recognizing the “investor community as a customer” (Hanssens et al., 2009, p. 115). Specifically, this study investigates the relationship between IR management quality, depicted by a company's relationship perspective toward its investors, and IR outcomes in the capital market.
7.1. Contributions to research
This study presents a framework that describes the role of marketing for analyzing and managing investor relationships. The framework extends Srivastava et al. (1998) by treating investor relationships as market-based assets that can generate favorable IR outcomes in the capital market. Specifically, scoring high on the IR management quality measure correlates positively with increased analyst coverage, enhanced stock liquidity, a lower cost of capital, and reduced shareholder activism. The effect on analyst coverage levels off after an initial plateau is reached (see Fig. 2a), which may cause the statistical insignificance of this specific relationship. The findings recommend a more active marketing approach, extending marketing's tools beyond their compartmentalized isolation to generate shareholder value across functions. The result would be “investor relationship marketing” (Tuominen, 1997).
7.2. Managerial implications
Regarding IR as relationship management and investor relationships as market-based assets changes the way IR is conducted and acknowledges the fact that investors are driven by both economic and affect-based motivations (Statman et al., 2008 and Aspara and Tikkanen, 2010). The proposed philosophy moves beyond one-way communication, turning IR management into a dynamic, forward-looking, two-way relational activity.
Because of the high congruency among trust, commitment, and relationship orientation, managers might concentrate on managing these factors simultaneously. Regular meetings with shareholders might enable the firm to express a collaborative relationship orientation, while nurturing trust and commitment during these interactions. Another example is a transparent and reliable contact strategy linking investors and the company. A proper institutional design is important: To be considered trustworthy and honest, relationship marketing efforts should move beyond superficial language (O'Malley and Prothero, 2004).
Finally, taking a relational market-based asset perspective of IR does not imply total dependence of a firm on its existing shareholders. Rather, it implies questioning the investor population's appropriateness, given the company's strategy and the costs of maintaining the relationships. As Srivastava et al. (1998, p. 15) recognize, “the market-based assets an organization possesses may not be those it needs.” When a cooperative relationship orientation leads to excessive costs or causes too much dependence, the best thing to do may be to cease or “beautifully exit” the relationship (Alajoutsijärvi et al., 1998).
7.3. Limitations and future research
The previous results and implications should be interpreted within this study's limitations, each providing avenues for further research. First, this study's empirical part is exploratory. A larger sample size would allow using more advanced statistical techniques. Second, an interesting research opportunity would relate (changes in) IR management quality directly to shareholder value creation. For this purpose, additional research may measure investors' responses to a company's IR activities using four-factor financial models or event studies (Srinivasan and Hanssens, 2009). Third, this study focuses on relational market-based assets as one of the two categories of market-based assets Srivastava et al. (1998) identify. Intellectual market-based assets may be equally relevant, but are beyond this study's scope. Investor intelligence (gathering more information about their behavior and segmenting, targeting and positioning based thereon) may also improve IR practice. Fourth, future research may investigate possible interactions among the IR outcomes. Analyst coverage, for example, may also influence cost of equity capital. Overall, this study contributes to a better understanding of IR and the role of (relationship) marketing in this regard. IR merits a systematic management, in which relationship marketing (tools) complement existing knowledge and practice.
