Valuation effects of investor relations investments


  • We have benefited from useful comments and suggestions from Nikos Vafeas, an anonymous referee and workshop participants at Maastricht University. We acknowledge research assistance from Constantina Pavlou, and financial support from the University of Cyprus Research Committee.


We investigate the stock price performance of 146 firms announcing the appointment of a new investor relations (IR) officer or the hiring of an IR firm between 1999 and 2005. We find positive abnormal returns around the announcement day. In addition, we find evidence that firms with lower valuations, higher idiosyncratic risk, greater chief executive officer holdings, and firms that announce in the post-Sarbanes-Oxley Act era experience greater valuation effects. Finally, we document significant reductions in the information asymmetry and significant increases in the liquidity and visibility of IR firms in the year following the IR announcement.