7.2 Measuring Success
The success of IR measures is difficult to verify objectively.
Measuring success always requires a causal connection between the measure and its effect. This can rarely be unequivocally established in communications.
What kind of quality is the IR communication? What effects does it trigger: Satisfaction, trust, investor loyalty? How sensibly are budgets employed? An isolated measurement of the impact is almost impossible in practice, while the operationalization of the target values has proved to be problematic. Hardly any suitable measurement models and instruments are available. In fact, causal relationships can generally only be assumed today. Systematic controlling of the Investor Relations that goes beyond the measurement of success does not exist. A «return on investment», which allows income and expenses to be allocated to individual measures, cannot currently be realized on account of the problems described.
Nevertheless, there are tests and ways that demonstrate a measurement of IR success by systematically obtaining data that are objective as possible on the effectiveness of the measures carried out. Empirical studies for the stock market in the US show that the market valuation of companies with good financial reporting is significantly higher in comparison with the industry average and that these companies report a lower volatility.
Defined Strategy and Targets as the Basis for Measuring Success
First of all, it should be established whether the investments in the management of the Investor Relations are worth it in terms of the defined targets and whether they are appropriate. To this end, it is important to evaluate the impact both of individual instruments and of the whole program. The relevance of strategic objectives for Investor Relations is once again demonstrated here. The measurement of success primarily examines the previously defined IR goals, and the identification of suitable criteria for success depends crucially on the defined target values.
What should actually be measured then? The proxies for monitoring success and the levels of the measurement of success provide a starting point. See the two figures on the next page.
Measuring the Success of IR Measures
Criteria for Measuring Success in Terms of the Stock Market | Criteria for Measuring Success in Terms of Publicity |
| Trends in the size and composition of the shareholder base (especially commitment of institutional investors after IR activities) | Number of IR presentations and IR interviews |
| Performance of the share price relative to the general market and to the industry (analysis of dividend yield, PER, PCFR and PBR) | Behavior related to the demand for information, understanding of the information communicated, and level of knowledge about the company among multipliers and investors |
| Trends in the security-specific volatility in a sectoral and time comparison | Acceptance/assessment in the financial community of the IR activities conducted (including by means of participant numbers at event, criticism expressed, feedback) |
| Trends in stock market sales before and after IR activities (e.g. financial analysts’ meeting, press conferences, roadshows, etc.) | IR rating from independent institutions (e.g. FuW, pro Swiss Invest, SVFV) |
| Willingness of investors to commit during capital increases and in the case of shareholder options | Number/frequency and also quality of the contents of the company studies and press reports written about the company as well as stock recommendations expressed |
| Investment loyalty of investors in crisis situations and downward trends in the results and share price | Profile/financial image of the company in the financial community |
| Accuracy of the forecasts in the earnings estimates published by analysts |
Proxies for measuring the success of IR measures. Source: Drilli
Proxy values related to the stock market and publicity can provide indications of the success of the IR measures only if they are calculated over a lengthy period. This is because the share price is much more heavily dependent in the short term on the general market sentiment, trends, and economic climate.
Levels of Measurement of Success of Investor Relations
At What Levels Can the Success of IR Be Assessed?
- At the output level, the quantity of the pure «production output» of the IR communications can be measured. This includes, for example, the number of contacts with investors, conference calls, or visits to the IR website.
- At the outgrowth level, the perception by the target groups is surveyed in quantitative and qualitative terms. How was the communication output perceived and how was it understood?
- At the outcome level, the impact of the information on the attitude and the behavior of the target group is examined. Measurement instruments include perception studies (see ➔ Chapter 7.3).
- Finally, it can be investigated at the outflow level what influence the change in attitudes and behavior has on the value added and the enterprise value.
It should be noted that the currently practiced methods move for the most part in the area of the performance measurement and do not deal with the actual success (outcome and outflow).
It generally holds true that success can be expected only as the result of continual and long-term IR work. The confidence of investors is difficult to win using short-term campaigns that are conducted on a case-by-case basis, for example immediately before a capital increase, and it is impossible to measure any success here systematically.
The following quantitative and qualitative metrics can be consulted in the course of a pragmatic and sensible implementation of the measurement of success. However, they offer only a rough and frequently unrepresentative picture of the IR success, and they lack causality. Virtually all methods neglect the acceptance and decision-making processes of the actors on the capital market whose behavior is, however, crucial for the assessment of the company and thus the success of the IR measures. A combination of qualitative and quantitative measures therefore seems worth striving for.
Quantitative Metrics
- Share price: performance comparison with a peer group or leading index
- Volatility: fluctuation of a share in comparison with the overall market
- Capital costs: allow indirect conclusions to be drawn on IR
- Investor mix: As a rule, private investors own fewer shares than institutional investors but tend to hold their portfolios for a much longer time, which plays a part in reducing price volatility. Inside investors generally have extremely long holding periods
- Investors by geographical distribution: The success of a roadshow can be measured by the geographical distribution of the shareholders. The analysis can also be used to plan the next roadshow (for example in a region with few investors up to now).
- Purchases and sales: Important additions and disposals in the share register and in accordance with SIX reporting obligations should be systematically recorded.
- Bid-ask spread: Investors would like to know the transaction costs for purchasing and selling shares.
- Average holding period: The aim of IR is to increase the holding periods and reduce the volatility.
- Stock in circulation: The number of available shares for trading influences the price stability. If a lot of securities are available for trading on the market, large daily trading volumes can be coped with and the price stability increased as a result. In turn, this increases the attractiveness of the stock.
- Trading volume: Regular roadshows can help increase the trading volume over the long term, and liquidity can be improved as a result.
Other quantitative key performance figures can be found in the book by Steven Bragg, pages 225 ff.ii
Qualitative Metrics
- Perception studies (survey of capital market participants)
- Analyst coverage: Analysts’ reports are an instrument for selling shares. One of the goals of IR is to generate research coverage for the company that is as broad as possible.
- Number and composition of the participants at broker conferences, on conference calls, and at investor days (reflects interest in the company)
- Analysis of the contents of research reports on the sell side (investigation of the deviations)
- Use of the IR web pages (access statistics and assessment of the quality of the content)
- IR ratings published annually by organizations and the media
| i | Drill, Michael: Investor Relations. Funktion, Instrumentarium und Management der Beziehungspflege zwischen schweizerischen PublikumsAktiengesellschaften und ihren Investoren, Haupt, Bern, 1995 |
ii | Bragg, Steven M.: The Investor Relations Guidebook, 4th edition, Centennial, Colorado, 2020 |