Investor Relations and Regulation FD

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less need to be optimistic to maintain a private information advantage. Also, the Global Settlement occurred during the post-Reg FD period, which reduced analysts’ optimism in general. MBE and Accuracy for both IR and control firms also decreased in the post-Reg FD period. Overall, the evidence reveals some noteworthy effects of the consequences of Reg FD on a group of firms whose practices prior to Reg FD were a target of the regulation. Despite Reg FD potentially dampening an IR firm’s close relationship with analysts, IR firms have not lost analysts but have gained analyst following in the post-Reg FD environment relative to a control sample. This suggests that even though Reg FD targeted some IR activities, the inbuilt ability of an established professional IR function at the time of Reg FD conferred an advantage on IR firms in the post-Reg FD environment. IR firms may be better able to navigate the regulations to continue communicating with analysts relative to the non-IR control sample. This post-Reg FD relative advantage can also be seen in the lack of a relative decline in the likelihood of meeting expectations and analyst forecast accuracy. The decrease in forecast dispersion of analysts following IR firms with no significant decrease in accuracy suggests a reduction in analysts’ private information and a convergence toward a consensus, though the consensus itself does not improve. The insignificant differences between IR and control non-IR firms in the pre- and post Reg FD period and the difference-in-difference results imply that analysts felt no more pressure to be optimistic about IR firms relative to control firms and Reg FD had no effect on the relative recommendation level. 4.4 INSTITUTIONAL OWNERSHIP Table 5, Panel B, shows that in the pre-Reg FD period, IR firms had a significantly greater number of institutional investors and a larger percentage of their shares outstanding held 23
y institutional investors. In the pre-Reg FD period, IR firms have 142 institutional investors and 53.8% of their stock held by institutional investors compared to 106 institutional investors and 39.2% for the control non-IR firms. Both the IR and control firms show a significant increase in institutional investor ownership from the pre-Reg FD period to the post-Reg FD period. However, IR firms continue to have a greater amount of institutional ownership in terms of number of owners and percentage of shares held than the control firms during the post-Reg FD period. Despite Reg FD eliminating the ability of IR firms to offer selective one-on-one’s with institutional investors where nonpublic information is discussed, the gap between the IR firms and control firms grew over the period by an average of 16 institutional investors (p=0.00). The percentage of institutional ownership, however, showed no difference-in-difference change. Overall, the results suggest that Reg FD did not reduce IR firms’ institutional shareholder base despite Reg FD outwardly eliminating an IR firm’s ability to selectively disclosure information with institutional investors. On the contrary, there is some evidence that IR firms increased their institutional shareholder base relative to similar firms. Similar to the analyst result, IR firms may be better prepared to build and maintain relationships with institutional investors relative to similar non-IR firms in the stricter post-Reg FD environment. 4.5 INFORMATION ASYMMETRY Table 5, Panel C, shows that in the pre-Reg FD period, the IR and control firms did not differ significantly in terms of Bid-Ask Spread or Turnover. In the post-Reg FD period, however, the IR firms’ Bid-Ask Spread dramatically reduced, as did the spreads of the control firms. 14 The difference-in-difference result shows no evidence that IR firms’ Bid-Ask Spread changed relative 14 One explanation for this decrease is the decimalization of the NYSE/AMEX firms in 2001. 24
Page 1 and 2: Investor Relations and Regulation F
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 and 10: Reg FD. However, Heflin et al. (200
Page 11 and 12: current practices, educational prog
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: These are consistent with the objec
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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