Because of globalization and the development of financial markets, companies have become obliged to focus on a new work : investor relations. Nowadays communication is very important...communication is key to success! It's a link between a company and investor community. That's why investor relations have a strategic importance. Thus companies have to devote time to this activity which enable to earn a good reputation.
• What are the criteria of good investor relations?
The key aim is to appear “transparent” by providing the maximum of informations. Thus investor community can feel reassured and confidant. Therefore annual reports have to be available as well as company' s strategy, structure and management. The company has to find the appropriate balance between technical and easy information. In fact this information must be useful for financial analysts but also for all the shareholders.
Finally another important criteria is the interactivity. Investors community is indeed keen to contact the company to request some information. Thus it would be advisable for company to elaborate some e-communication and blog.
• Do investor relations provide a real knowledge ?
For investors, information provided by the company is useful. Nevertheless it is not sufficient to create a knowledge. It is advisable for investors community to use it only like a data or an information and then create their own analysis. In fact companies try to influence and attract investors by giving a good image of their situation. Companies try to emphasize their advantages and hide their weakness. Consequently only the financial statements, which are neutral, are useful.
Thanks to balance sheet and income statement investors can determine financial ratios (liquidity, leverage, profitability, efficiency...) and compare the company to the whole industry. Thus investors can create their own knowledge of the company.
• The importance of financial informations : the case of LVMH and Morgan Stanley.
Financial informations are crucial for investor community. Without this tool, it would be impossible to examine companies. Thus this information must be precise and proved. Otherwise it could lure people...
For example in 2004 Morgan Stanley gave false information about the group LVMH. Consequently LVMH shares decreased sharply. Then Morgan Stanley was ordered to pay at least 30 million euros ($38.5 million) in damages to LVMH after a Paris court found the investment bank guilty of "talking down" the world's largest luxury goods maker in analyst research notes.
This example emphasizes the crucial importance of financial communication and the impact it may have on investor community.
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