Public Listed Companies and Fund Managers - Academic ...

Norraidah Abu Hasan et al.
The Malaysian Code on Corporate Governance included the principal responsibilities of the Board in
developing and implementing an investor relations program or shareholder communications policy for
the company. Further, the revised Malaysian Code on Corporate Governance 2007 (MCCG, 2007)
emphasizes the relationship between the board and the shareholders.
This study examines the gap between the perceptions of public listed companies and fund managers
on investor relations programs. There are two types of shareholders, individual shareholders and
institutional shareholders. It is the responsible of all companies to provide equal information to their
shareholders. However, this study only focuses on fund managers, as they play a bigger role in the
stock market compared to other type of shareholders without denying the fact that each shareholder
shall be treated equally by a company.
2. Literature review
After the collapse of Enron, investors become more vigilant than before by looking deeper into
companies and demanding full disclosures. Disclosure is a method of communication between a
company and its investors and stakeholders at large who have interest in the value of firm (Kothari,
2001). Disclosure is also a part of corporate reporting channel that provides useful information to
investors in assessing the amounts, timing, and uncertainty of future cash flows. Useful information
improves investors’ decision making leading to a better allocation of resources in the economy. Lack
of proper information to investors leads to an information problem between insiders and outsiders of
the company (Healy and Palepu, 2001). This is considered as information asymmetry.
Chang, Murphy and Wee (2006) conducted a study on Australian firms using a web-based survey to
rate the firm’s IR practices, and found that continuous disclosure can reduce the information
asymmetry and reduce investor shocks when they receive the negative news during the earnings
announcement. Marston (1996) indicates that effective investor relations involve continuous voluntary
disclosure of company information in the form of annual reports, earnings forecasts and
announcements, proposed investments, governance procedures, dividends and financing intentions
and a wide range of other information, both formal and informal. Furthermore, investors also
concerned on the disclosure of companies’ corporate responsibility practice and those related to the
environmental exposure in which the company operates (Khalid Al-Khater and Kamal Naser, 2003;
Mustaruddin Saleh, Norhayah Zulkifli, and Rusnah Muhamad, 2010).
Many companies have identified that the investor relations function is of great importance within their
organization. Information can be grouped into two categories, namely mandatory disclosure and
voluntary disclosure. Mandatory disclosure is the information that must be disclosed by the company
as required by law. Holland (2001) indicates that firm usually disclose four types of information to
investors; (i) mandatory public disclosure, (ii) voluntary public disclosure, (iii) private disclosure and
(iv) nondisclosure.In Malaysia, disclosure is part of listing requirements and stipulated in Malaysia
Code of Corporate Governance (Bursa Malaysia, 2007). A public listed company (PLC) is legally
obliged to provide the timely and accurate information to the investors. Voluntary disclosure is the
information that is made voluntarily by the firm that not included in law such as profit forecasts,
prospects of future research and development projects of companies (Healy and Palepu (2001). This
information is crucial for investors to make viable and appropriate decisions.
Hall (1992) suggests that investor relations may influence both the equity market valuation and the
potential evaluation of investors. Tuominen (1997) explains that investor relations are able to create
common long-term interaction between the organization and its direct and indirect partner groups in
the investor community. Moreover, Dolphin (1999) argued that investor relations as a significant tool
of corporate communications strategies that can win the financial stakeholders’ approval, and play a
key role in gaining investors’ support to the companies.
Continuous disclosure in investor relations programs is one of the components that contributes to the
effective communication with shareholders and enhances the transparency of the company.
Richardson and Welker (2001) in their research highlighted the corporate-fund manager meeting is
important factor in enhancing the relationship between a company and its investees. Furthermore,
Barker (1998) and Marston (2001) found that fund managers’ meetings with senior management are
their most preferred mode of communication. Private one-to-one meetings with companies provide
unique opportunity for the investors to discuss questions that could not be done in general meetings
(Larran and Rees, 2003). Traditionally, the method of investor relations was seen as formal or
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