The Supply and Effectiveness of Investor Relations in Insider- vs. Outsider-Oriented Markets

Using annual survey-based investor relations (IR) data for a panel of European companies, we document that the supply and effectiveness of IR varies with country- and firm-level demand. Relative to their industry peers, firms from insider-oriented countries have larger IR staff, which predicts better IR rankings. Better IR is associated with greater visibility, information assimilation, and valuation, with visibility and assimilation being significantly greater for firms from insider-oriented countries. Within such countries, firms with greater outsider orientation have higher capital market benefits. Furthermore, using Markets in Financial Instruments Directive II as a shock to analyst coverage, we find an incrementally larger association between IR and visibility in insider-oriented countries after 2017. Overall, the evidence suggests that the supply of IR in insider-oriented markets has reached a high level, acting as a viable mechanism to improve firms’ information environment. However, within those countries, IR demand still varies significantly, with outsider-oriented firms showing greater IR effectiveness. This paper was accepted by Brian Bushee, accounting. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4368 .