Investor Relations and Regulation FD

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component of trading costs) has been reduced. We investigate the effect that Reg FD had on the level of information asymmetry for firms with professional IR. It is likely that firms with professional IR were engaged in activities that the SEC believed conferred an unfair advantage to security analysts and institutional investors prior to adoption of Reg FD. To the extent that firms with professional IR selectively provided nonpublic information about future earnings, we expect there to be a spike in public earnings guidance after Reg FD. However, it’s unclear whether this initial spike in public earnings guidance will continue as firms re-evaluate their disclosure policy. How IR firms adapted in this new economic environment and the effect on analysts, institutional investors, and information asymmetry is more complex. Firms with an established IR presence at the time of the regulation have a unique trait that is targeted by the regulation. One possibility is the regulation was ineffective. A second possibility is that the advantage firms with professional IR held in the pre-Reg FD era could be negated by the regulation’s attempt to level the playing field. A final possibility is that an unintended consequence of the regulation may have been to confer an advantage on firms that are more adept at managing relationships and navigating in the new regulatory environment. As a result, we view the effect of Reg FD on firms with an established professional IR presence to be an open empirical question. 3. Data and Research Design 3.1 INVESTOR RELATIONS PROXY We use employment of a NIRI member within a firm as a proxy for professional IR. 4 NIRI is the association for IR professionals. It provides IR professionals with information on 4 Our construct of interest is a firm’s professional IR and our proxy is NIRI membership. The paper does not test or make claims about the additional value added by NIRI membership. 9
current practices, educational programs, networking opportunities, and conferences including the NIRI Annual Conference. Corporate Membership in NIRI currently costs $475 and requires that the individual be “actively engaged in the practice of IR and/or corporate communication at the time of the application as an employee of a corporation listed on a public stock exchange (or of a company that is planning to list).” 5 To identify firms with members of NIRI on their staff, we gather the names and companies from NIRI’s Who’s Who in Investor Relations membership directory. This directory was published annually as a hard copy starting with a 1983/84 edition through a final 2004/05 edition. Subsequently, NIRI moved the directory on-line with the membership list updated daily and no historical record. We revisit this on-line version yearly beginning in 2007 to continue the time-series of annual NIRI members. We then hand-match company names with firm names in CRSP. Table 1, under “NIRI Membership”, shows the number of unique members, companies, and permcos (CRSP company codes) each year from 1983 – 2009. Membership showed a steady increase from 1,051 members in 1983 to 5,252 members in 2001 before decreasing to 3,407 in 2009. We then adjust the membership data to fill in gap years as these gaps are more likely due to a lapse in filing membership than the absence of professional IR at that firm. We fill in a gap year as an IR year if (1) the company had a NIRI member in the year immediately before and after the gap year, (2) the gap year is 2004 but the company had a NIRI member in 2003 and 2007, (3) the gap year is 2007 but the company had a NIRI member in 2004 and 2008, (4) the gap years are 2005 and 2006 but the company had a NIRI member in 2004 and 2007, and (5) the 5 NIRI offers four other membership categories: Counselor Member, Service Provider Member, Affiliation Profession Member and Academic Member. It’s unlikely that we mistakenly attribute one of these members to a CRSP firm as the organizations listed for these members are not listed in the CRSP population: small consulting firms, obvious news outlets (e.g. Newswire), small law firms, or universities. 10
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Page 3 and 4: professionalized IR role within fir
Page 5 and 6: field, IR firms do not lose any adv
Page 7 and 8: most members believed Reg FD would
Page 9: Reg FD. However, Heflin et al. (200
Page 13 and 14: FD period and maintain this match f
Page 15 and 16: changes. These economy-wide changes
Page 17 and 18: fiscal quarter. We follow Barron et
Page 19 and 20: manage communications with investor
Page 21 and 22: firms may be privately disclosing m
Page 23 and 24: These are consistent with the objec
Page 25 and 26: y institutional investors. In the p
Page 27 and 28: equally sized groups (Low Change an
Page 29 and 30: REFERENCES Ali, A., Kallapur, S. 20
Page 31 and 32: Panel A: Number of MEF .2 .4 .6 .8
Page 33 and 34: TABLE 2 Descriptive Statistics and
Page 35 and 36: TABLE 4 Changes in Public Disclosur
Page 37 and 38: TABLE 5 (cont.) Changes in Analysts

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