What is investor relations? Definition and meaning

Investor relations, also called financial communications or financial public relations, refers to dealing with investors, shareholders and other parties who are interested in a company’s shares or financial stability. Typically, it is the department of a company or an individual that reports to the Treasurer or CFO (chief financial officer).

Investor relations is the communication of data and insight between a corporation and the investment community. It helps the investment community gain a full appreciation of the corporation’s business activities, strategies, and prospects. It is is a long-term, enduring responsibility, rather than a function that businesses occasionally undertake.

Investor relations professionals help the investment community make informed judgments about the fair value and appropriate ownership of a business.

Investor relationsInvestor relations is an important sub-function of public relations.

The London Stock Exchange says the following about investor relations:

“Investor relations is the term used to describe the ongoing activity of companies communicating with the investment community. While the communication that quoted companies undertake is a mix of regulatory and voluntary activities, investor relations is essentially the part of stock market life that sees companies interacting with existing shareholders, potential investors, analysts and journalists.”

Investor relations activities may include releasing press releases, communicating through various media, meetings and presentations with investors, creating annual reports, and maintaining web pages. They all aim to inform stakeholders about the corporation so that they are better informed about its financial performance, governance, and prospects.

Investor relations often starts at IPO phase

For many publicly-listed companies, investor relations starts during its initial public offering (IPO) phase, when the aim is to profile the firm to a new set of potential investors.

After the IPO, the communication with stockholders, potential investors, and financial market commentators continues.

The Institute for Public Relations says that public relations is the most important of all sub-functions of public relations, especially if you base this on how much these specialists earn. According to several salary surveys, investor relations specialists are the highest paid public relations professionals.

According to the National Investor Relations Institute (NIRI):

“Investor relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.”

Many thing may affect investor sentiment

Investor relations professionals need to be on top of all rumors and concerns, even the non-financial and non-market ones, because they may affect investor sentiment.

A company’s share price is usually determined by how well it is performing, market conditions, market expectations, i.e. financial and market factors. However, this is not always the case.

In September 2008, Apple Inc. saw its share price decline significantly. The company was doing well financially, analysts were not criticizing its strategy, in fact, there was nothing to point to bad management or adverse market conditions.

However, the company’s CEO, Steve Jobs, looked worryingly thin during his recent public appearances, which made the investor community wonder about the company’s prospects.

Video – Warren Buffet on investor relations

According to business magnate Warren Buffet, it is crucial that all members of the investor community receive every piece of data at the same time (and of the same quality), regardless of how large or small they may be.