Journal of Business Research

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1 Journl of Business Reserch 64 (2011) Contents lists vilble t ScienceDirect Journl of Business Reserch Reltionship mrketing's role in mnging the firm investor dyd Arvid O.I. Hoffmnn, Joost M.E. Pennings, Simone Wies Mstricht University, The Netherlnds rticle info bstrct Article history: Accepted 4 September 2010 Avilble online 28 September 2010 Keywords: Mrketing-finnce interfce Investor reltions Role of mrketing Mrket-bsed ssets This pper develops n interdisciplinry conceptul frmework demonstrting the role of mrketing in mnging investor reltionships. The frmework illustrtes how compnies cn turn investor reltionships into mrket-bsed ssets by nlyzing nd mnging them from reltionship mrketing nd stkeholder perspective. Mrketing cn contribute to investor reltionship mngement nd increse shreholder vlue by lowering the cost of equity cpitl, incresing nlyst coverge nd stock liquidity, nd reducing shreholder ctivism. An investigtion mong investor reltions professionls working t publicly trded compnies in the Euronext 100 stock index demonstrtes the frmework's empiricl vlidity nd provides mngeril implictions Elsevier Inc. All rights reserved. 1. Introduction Intngibles under mrketing control, like customer equity, constitute n incresing proportion of firm vlue (Luks et l., 2005) nd empiricl studies show positive link between mnging such mrketing ssets nd stock mrket performnce (Srinivsn nd Hnssens, 2009). The notion of mrket-bsed ssets integrtes existing but often overlooked linkges between mrketing nd the firm's finncil well-being (Srivstv et l., 1998). By employing internl resources, firms crete ssets tht mterilize s vlue through interctions with entities in the externl environment. Mrket-bsed ssets re either intellectul or reltionl: This study focuses on the ltter type. According to the resource-bsed view, orgniztions engge in prtner reltionships to effectively nd efficiently pool scrce resources nd crete reltion-bsed competitive dvntge (Morgn nd Hunt, 1999). Investment cpitl is one such key resource. Nurturing the reltionships with its providers investors should therefore receive considerble ttention from the corportion in generl, nd its mrketers in specific. Although mrketing's conceptul nd methodologicl pproches re pplicble to this exchnge reltionship (Lovett nd McDonld, 2005), the shreholder s reltionl mrketing group remins lrgely neglected. This is surprising, since shreholders ultimtely ber the cost of mrketing's decisions. As such, they (should) hve significnt impct on mrketing strtegy (Srinivsn nd Hnssens, 2009), nd be represented mongst mrketing's key externl stkeholders (cf. Srivstv et l., 1998). Investor reltions (IR) inititives drive shreholder vlue by enhncing demnd for firm's shres, lowering cost of cpitl (Botosn, 2006), incresing stock Corresponding uthor. Mstricht University, Tongersestrt 53, 6211 LM, Mstricht, The Netherlnds. E-mil (A.O.I. Hoffmnn). liquidity (Hely et l., 1999), nd enhncing nlyst following (Frncis et l., 1997). Studying their mngement represents key reserch opportunity for the mrketing discipline (Hnssens et l., 2009). As strtegic mngement responsibility, IR integrtes finnce, communiction, nd mrketing (NIRI, 2008). Existing literture, however, is scrce nd regrds IR s either the finncil end of the communictions function (Regester, 1990) or the communictions end of the finncil function (Dolphin, 2004). By focusing exclusively on finncil communiction (Mrston nd Strker, 2001), current literture ignores the complementry role of mrketing, despite its insights nd skills relevnt for mnging investor interctions (Lovett nd McDonld, 2005). Finncil informtion communiction is necessry but not sufficient condition for mnging investor reltionships. Recent literture, for exmple, shows tht besides expected returns, lso non-finncil dimensions, like investors' identifiction with compny, influence their behvior (Aspr nd Tikknen forthcoming). This study proposes tht to nlyze nd mnge investor reltionships successfully, mrketing insights must complement existing mngement nd IR literture. This study shows how the reltionship between compny nd its shreholders my be nlyzed nd mnged from reltionship mrketing nd stkeholder perspective, recognizing the investor community s customer (Hnssens et l., 2009, p. 115). Specificlly, this study investigtes the reltionship between IR mngement qulity, depicted by compny's reltionship perspective towrd its investors, nd IR outcomes in the cpitl mrket. 2. Investor reltions Trditionlly, the IR function nd inititives re compny prctitioner-led field trying to give current nd potentil investors n ccurte portryl of the firm's performnce nd prospects (Brown, /$ see front mtter 2010 Elsevier Inc. All rights reserved. doi: /j.jbusres

2 A.O.I. Hoffmnn et l. / Journl of Business Reserch 64 (2011) ). Although mny compnies subordinte its tsks to finnce or public reltions deprtments (Lskin, 2009), the IR function increses in scope (Ro nd Sivkumr, 1999) due to some key developments. First, expnding equity mrkets, deregultion, foreign exchnge listings, nd globl orienttion towrd shreholder vlue cretion (Mrston nd Strker, 2001) increse competitive pressures on cpitl cquirers. This pressure rises during finncil crises, mking cpitl very scrce nd vluble resource. In ddition, shreholder ctivism (Gilln nd Strks, 2007) prompt questions bout mngeril conduct, nd chllenges the IR function s firm investor meditor. Finlly, compnies' sset compositions include more off-blnce sheet intngibles (Whitwell et l., 2007) while investors incresingly focus on nonfinncil spects (Aspr nd Tikknen, forthcoming). These developments imply greter need to inform investors beyond trditionl ccounting sttements nd indicte the function's incresing importnce. Moreover, the IR function cn drive shreholder vlue, especilly through more ccurte vlution of the compny's securities. For exmple, highly-rted IR progrms decrese informtion risk by reducing nlysts' ernings forecsts dispersion (Frrgher et l., 1994). Effective IR cn lso increse demnd for the firm's shres nd lower the cost of cpitl (Botosn, 2006; Gelb, 2000), nd increse the securities' liquidity (Hely et l., 1999; Hong nd Hung, 2005). Corporte presenttions to nlysts increse nlyst following, the number of ernings forecsts, nd stock recommendtions (Frncis et l., 1997). IR lso positively influences corporte reputtion nd credibility (e.g., Ellis, 1985). All these benefits mterilize nd endure in the long-term. Therefore, IR cn constitute strtegic tool to build sustinble competitive dvntge. To be successful, IR requires compnies to expnd their ctivities to more frequent, extensive, proctive nd diversified two-wy interction nd communiction (Tuominen, 1997, p. 53), tking into ccount vrition in behvior nd preferences of different investor types (McGregor et l., 2000; Aspr nd Tikknen, 2010). Current IR prctice, however, focuses on rective mngement of finncil stkeholders' requests (Lskin, 2009) insted of estblishing proctive nd strtegic interction flows. Acknowledging the ltter, the next section presents reltionship mrketing pproch to IR. 3. Mrketing nd investor reltions Mrketing is chnging considerbly during the lst two decdes. Leving the relm of single trnsctions towrds new dynmic types of reltionships shpes the wy mrketing is seen nd expected to perform (Webster, 1992). A key definition of mrketing's reconceptuliztion describes its purpose s to identify nd estblish, mintin nd enhnce, nd when necessry terminte reltionships with customers nd other prties so tht the objectives regrding economic nd other vribles of ll prties re met (Grönroos, 2007, p. 5). Together with this new reltionship perspective, mrketing is expected to visibly contribute to shreholder vlue cretion (Dy nd Fhey, 1988), implying rdicl chnge from trditionl consumer welfre mximiztion to firm vlue mximiztion. As result of this reconceptuliztion, literture on the mrketing finnce interfce (Zinkhn nd Verbrugge, 2000) nd the impct of mrketing ctions on firm vlue develops (Srinivsn nd Hnssens, 2009; Stewrt, 2009). Srivstv et l. (1998) describe the role of mrketing s developing nd mnging mrket-bsed ssets, which rise when the firm intercts with externl entities. They increse shreholder vlue by ccelerting nd enhncing csh flows, lowering their voltility nd vulnerbility, nd incresing their residul vlue. Mrket-bsed ssets re either intellectul or reltionl. The former entil unique knowledge firm ccumultes bout its environment tht enbles it to chieve competitive dvntge. The ltter comprise vluble outcomes of the reltionship between the firm nd key externl stkeholder groups, nd re this study's focus. Although investor reltionships cn constitute n equipollent mrket-bsed sset (Coyne nd Witter, 2002), mrketing finnce literture does not explicitly del with the firm investor dyd in this wy. Neglecting shreholders s n importnt stkeholder group is unfortunte s the mrketing literture nd profession offer vluble insights for mnging interctions with investors. According to communictions scholrs, IR is inherently mrketing responsibility, constituting neglected core element of coordinted mrketing communictions strtegy (Dolphin, 2004, p. 27). This encompsses interpreting investors s customers of the firm's most importnt product, nmely the compny itself (Ferris, 1988, p. 173). Economic ctors link experiences obtined in consumption nd finncil mrkets (Aspr nd Tikknen, 2008, 2010). Since consumption mrket ttitudes re primrily controlled by mrketing, it seems meningful to use this discipline's insights to simultneously shpe investment mrket impressions. Lovett nd McDonld (2005) support this conjecture, stressing tht the firm cn nd should directly mrket to both consumption nd finncil mrkets. In brief, mrketing s successful mngement of reltionl exchnges (Morgn nd Hunt, 1994) is nturlly designted to support stkeholder reltionships, including those with investors (Dolphin, 2004; Lovett nd McDonld, 2005). Tuominen (1997, p. 47) coins the term investor reltionship mrketing to refer to the continuous, plnned, purposeful, nd sustined mngement ctivity which identifies, estblishes, mintins, nd enhnces mutully beneficil long-term reltionships between the compny nd their current nd potentil investors, nd the investment experts serving them. Bhgt et l. (2004) nd Ayres nd Crmton (1994) discuss how reltionl investors, defined s committed outside investors who hold lrge stkes of compny's shres for longer time periods, my improve firm performnce. Extending these notions, this study presents conceptul frmework tht moves IR beyond the finncil communiction domin. 4. Conceptul frmework Fig. 1 depicts the conceptul frmework nd the role of reltionship mrketing in mnging the firm investor dyd. It extends Srivstv et l. (1998) nd explicitly includes investor reltionships s mrket-bsed ssets. Becuse of their intngible, firm-specific nture, mrket-bsed ssets re rre, difficult to imitte, without perfect substitutes, nd of gret vlue by their bility to generte competitive dvntge. Effective stkeholder mngement offers intngible resources tht enhnce the firm's bility to outperform its competitors in long-term vlue cretion (Hillmn nd Keim, 2001). The conceptul frmework shows severl wys tht mnging investor reltionships ccording to reltionship mrketing principles contributes to shreholder vlue. The five reltionl dimensions reflect IR mngement: Scoring highly on these ttributes indictes greter IR mngement qulity. Given the presumption tht investor reltionships re mrket-bsed ssets, IR mngement qulity should mterilize in improved finncil mrket performnce (IR outcomes), nd, ultimtely, shreholder vlue IR mngement qulity The five reltionl dimensions tht together compose IR mngement qulity stem from extnt, generl reltionship mrketing reserch, nd re prticulrly relevnt for the firm investor dyd. These dimensions influence how firm investor reltionships evolve, nd point to compnies' strtegic options to mnge them. The following sections elborte on the reltionl dimensions nd their respective impct on IR mngement qulity.

3 898 A.O.I. Hoffmnn et l. / Journl of Business Reserch 64 (2011) Investor community IR mngement qulity IR: Mnging reltionl dimensions Reltionship orienttion Reltionship evlution mode Trust Commitment Reciprocity Mrketing Reltionship mrketing Stkeholder mngement IR outcomes Cost of equity cpitl (-) Stock liquidity (+) Anlyst coverge (+) Shreholder ctivism incidents (-) Shreholder vlue Compny Reltionship Mrketing s Role in Mnging the Firm Investor Dyd Fig. 1. Reltionship mrketing's role in mnging the firm investor dyd Reltionship orienttion Reltionship orienttion defines nd guides reltionship prty's behvior (Hosseini nd Brenner, 1992). A compny's reltionship orienttion towrd shreholders cn be coopertive, individulistic, or competitive (Deutsch, 1982). With coopertive orienttion, the firm tkes the welfre of both prties into ccount, mximizes joint outcomes, nd pursues positively linked gols (Oleklns nd Smith, 2002). A coopertive orienttion ctivtes n integrtion mindset tht leds to ssimiltion in points without congruence yet estblished (Stpel nd Koomen, 2005), which reduces the likelihood of conflicts. With n individulistic orienttion, the compny strives to mximize individul success without considering the well-being of its investors (Oleklns nd Smith, 2002). This pproch might induce shre sles, shre price decreses, nd incresed voltility. Finlly, entities with competitive orienttion im to previl nd influence shreholders by employing dominnce or pressure. Gols link negtively; ttining one prtner's gols interferes with others' gols. In the frmework, more coopertive forms of reltionship orienttion led to higher score on the compny's overll IR mngement qulity Reltionship evlution mode During the course of reltionship, prties evlute their interctions, guided by their reltionship evlution mode, which my be opertionl or strtegic. When compny focuses only on short-term cost-benefit evlutions, it uses n opertive evlution mode. In contrst, the strtegic evlution mode focuses on long-term opportunities from the firm investor reltionship, with the reltionship s strtegic resource, emphsizing its investment chrcter (Hll, 1993). The compny's doption of more strtegic form of reltionship evlution therefore prompts higher score on the compny's overll IR mngement qulity Trust Trust, or the willingness of one prty to be vulnerble to the ctions of nother (Myer et l., 1995), is useful for nlyzing the firm investor dyd. The risk nd vulnerbility of investor reltions relte to the dnger of grnting shres to unfriendly prtners (Mikkelson nd Prtch, 1997). Trust genertes positive outcomes, including reduced decision mking uncertinty, enhnced coopertion, effective delegtion, nd shred responsibility (e.g., Gundlch et l., 1995; Morgn nd Hunt, 1994). These fvorble consequences depend on different forms of trust. Severl txonomies exist (e.g., Rousseu et l., 1998). All shre progressing nture, from mere economic cost benefit clcultions to being ble to predict the counterprty's behvior to totl understnding, greement, nd endorsement of ech other's intentions. In these situtions, compnies cn engge in more deliberte nd long-term exchnges with shreholders, such tht the prties understnd the need to invest in reltionship before reping profits. Hence, in the frmework, compny tht dopts higher forms of trust towrd the investor bse scores higher on overll IR mngement qulity Commitment Commitment is n implicit or explicit pledge of reltionl continuity between exchnge prtners (Dwyer et l., 1987, p. 19). Exchnge prtners believe n ongoing reltionship is importnt enough to wrrnt mximum efforts to mintin it. Commitment is essentil to long-term reltionl bonds between compny nd investors (Tuominen, 1997) nd my led to enhnced motivtion nd involvement, simpler governnce structures, nd loylty (e.g., Gundlch et l., 1995). These positive effects might increse successful mrket performnce in the form of less perceived risk, csh flow stbility, or fvorble stock recommendtions. Ultimtely, creting positive ffect towrds compny stimultes investors' willingness to invest in its shres (Aspr nd Tikknen forthcoming). The compny's doption of higher forms of commitment towrd its investor bse leds to higher score on the compny's overll IR mngement qulity Reciprocity In socil exchnge, reciprocity describes the shred understnding of repying giving nd tking in equivlent mesures (Gouldner, 1960). Reciprocl strength determines how reltionships evolve (Polonsky et l., 2002). With strong form reciprocity, interctions tke the form of equivlent nd synchronized quid pro quo exchnges, ensuring the prties re even t every point in time. Prties cnnot develop potentilly highly profitble, but long-term, strtegic inititives tht require trust. Wek form reciprocity mkes the equivlence nd timing of returns less importnt nd is more common for longterm-oriented reltionship, in which prties trust ech other nd know they will not be exploited if they occsionlly contribute more resources thn their counterprts. In the frmework, compny's doption of weker forms of reciprocity towrd the investor bse erns higher scores on overll IR mngement qulity IR outcomes Mnging reltionl dimensions to increse IR mngement qulity should result in fvorble cpitl mrket outcomes. Prior literture indictes tht reltionl investors cn be ssocited with higher stock mrket returns (Bhgt et l., 2004) nd reduced gency costs (Ayres nd Crmton, 1994). Accounting literture notes the economic benefits of voluntry disclosure, which forms substntil element of IR ctivities (Grhm et l., 2005), nd public reltions literture indictes potentil wys IR contributes to the orgniztionl bottom line (Lskin, 2007). Integrting this literture, this study

4 A.O.I. Hoffmnn et l. / Journl of Business Reserch 64 (2011) includes four cpitl mrket outcomes: Reduced cost of equity cpitl, improved stock liquidity, incresed nlyst coverge, nd less shreholder ctivism. Providing more relevnt informtion to investors reduces informtion symmetries between the investor community nd the compny nd hence informtion risk (Botosn, 2006; Lskin, 2007). If informtion risk represents non-diversifible risk fctor, sset pricing theory predicts tht investors employ lower discount rte when vluing the compny's future csh flows (Hely nd Plepu, 2001). Higher IR mngement qulity is supposed to fcilitte informtion trnsfer nd therewith reduce informtion risk. H1. The compny's investor reltions mngement qulity comprising the five reltionl dimensions reltes negtively to its cost of equity cpitl. Reduced informtion symmetries nd proctive IR mngement lso increse investors' confidence bout finding fir price trnsctions, which should increse trding nd stock liquidity (Hely nd Plepu, 2001). Liquidity refers to n investor's bility to buy nd sell ssets quickly nd trnsct mny shres without ffecting the security's price. Michelson nd Gilfether (2003) refer to incresed trding volume s positive outcome of IR. H1b. The compny's investor reltions mngement qulity comprising the five reltionl dimensions reltes positively to its stock liquidity. Another fvorble IR outcome is incresed nlyst coverge. Informtion disclosure nd ctive IR mngement lowers nlyst' informtion cquisition cost nd thus induces more coverge (Hely nd Plepu, 2001; Michelson nd Gilfether, 2003). H1c. The compny's investor reltions mngement qulity comprising the five reltionl dimensions reltes positively to its nlyst coverge. Finlly, shreholder ctivism represents shreholders' responses when delegted decision-mking to compny mngement is perceived s unstisfctory. Activism ttempts to increse shreholder vlue, but no strong empiricl evidence supports this effect (Krpoff, 2001). Rther, investor ctivists my distrct mngement from ctul tsks (Admti et l., 1994), focusing on short-term results t the expense of long-term projects (Krpoff et l., 1996). By building better reltionship with investors (Lskin, 2007), IR mngement my reduce shreholder ctivism. Hence, this study regrds reduced shreholder ctivism s fvorble IR outcome. H1d. The compny's investor reltions mngement qulity comprising the five reltionl dimensions reltes negtively to the number of shreholder ctivism incidents the compny encounters Shreholder vlue Ultimtely, through impcts on firm's mrket performnce, mrket-bsed ssets re vluble if they increse shreholder vlue. Studies show the positive impct of mrket-bsed ssets on shreholder vlue cretion (Srinivsn nd Hnssens, 2009), but direct investigtion of this link is beyond this study's scope. 5. Method The reserch design distinguishes two vrible sets: The reltionl dimensions comprising IR mngement qulity nd the IR outcomes in the cpitl mrket IR mngement qulity Dt collection An online questionnire mesures IR mngement qulity. A pretest verified if respondents understood the questionnire procedure, items, nd lnguge. After some revisions, n expert pnel of mrketing nd finnce cdemicins nd IR prctitioners confirmed the items closely resembled the intended constructs. The smple frme consists of publicly trded compnies listed in the Euronext 100 stock index. Trget survey recipients were IR officers. Preliminry telephone contcts confirmed willingness to prticipte nd provided contct detils. With compny permission, n e-mil invittion went to the prospective prticipnts. The ultimte response rte ws 26% Mesurement development This study uses estblished nd vlidted scles to mesure the constructs, rewriting the individul items of ech scle to mke them pplicble to the firm investor dyd. As no estblished mesure exists for reltionship evlution mode, new items re creted bsed on the relevnt theory. Reltionship orienttion consists of six items, dpted from Johnsen et l. (2008) nd Meyer et l. (1993). This study ssesses reltionship evlution mode with four new items inspired by Plmtier et l. (2008) nd Bordonb-Juste nd Polo-Redondo (2008). Five trust items come from Tx et l. (1998) nd McMilln et l. (2005). The commitment mesure with six items is dpted from Meyer et l. (1993) nd Morgn nd Hunt (1994). Reciprocity fetures five items bsed on Pervn et l. (2009) nd Moormn et l. (1993) Mesurement purifiction Fctor nd relibility nlyses bsed on the pretest dt ensure the questionnire's mesurement qulity. Poorly fitting items tht hve low fctor lodings or reduce the scle's relibility re deleted (Netemeyer et l., 2003). The relibility of the finl mesurement instrument is good, s ll constructs' Cronbch's lphs re bove.70. Tble 1 shows the constructs' items, fctor lodings nd relibility. This study tests for convergent vlidity by nlyzing the correltions mong the individul items of single construct. All correltions exceed.34, nd re significnt t the 5% level. One-fctor solutions of explortory fctor nlyses confirm the finl scles' convergent vlidity. The study mesures discriminnt vlidity by proposing substntilly lower correltions between one dimension's items with different dimension's items thn with its own items. The t- sttistics re highly significnt, supporting discriminnt vlidity. Additionl fctor nlyses show tht when fctoring ll items for ll constructs, the respective items of the different constructs lod highest on their own constructs while cross-lodings with other constructs re low or insignificnt. Finlly, this study determines n overll IR mngement qulity score (IRMQ) s the unweighted verge of the reltionl dimensions. IRMQ is conceptulized s higher-order, formtive construct since (1) it is complex nd hs multiple dimensions, ech representing n importnt spect of the construct, nd (2) these spects re unique, distinguishble nd not interchngeble (Ruiz et l., 2008) IR outcomes in the cpitl mrket Dt collection Cost of equity, stock liquidity, nd nlyst coverge come from Compustt nd I/B/E/S. The most tngible form of shreholder ctivism dt re the proposls submitted by shreholders. Commercil dtbses monitor these events in the U.S., but do not cover Europe. Therefore, this study tkes two-source pproch to collect ctivism dt. First, the newspper dtbse of LexisNexis is used. Second, this study exmines voting results t nnul generl meetings

5 900 A.O.I. Hoffmnn et l. / Journl of Business Reserch 64 (2011) Tble 1 Mesurement items, fctor lodings, nd construct relibility. Construct Item wording Fctor lodings c Cronbch's lph Reltionship orienttion We feel sense of responsibility for our investors We re willing to shre dditionl informtion nd mteril with our investors even if it does not.80 trnslte into visible dvntge for us We re willing to mke scrifices for the ske of sound reltionship with our investors.76 Our investors pursue the sme gols or interests s our compny The one nd only im with regrd to investor mngement is to rise cpitl (reversed) When tlking to our investors, we would consider frming our objectives in such wy tht we cn chieve our gols (reversed) Reltionship evlution mode We re convinced tht good reltionship with our investors will py off for our compny in the future A successful reltionship with our shreholders constitutes sustinble competitive dvntge for us.94 It is impossible to hve successful reltionship between compny nd prticulr investor in the very long term When evluting how fir nd successful the reltionship with our investors is, we primrily mke short-term cost nd benefit trde-offs Trust We cn expect our investors to remin relible prtners in the future We feel we cn depend on our investors to negotite with us honestly.90 Our investors cn be relied upon to ct in the very best interest of our compny.82 We think tht our investors my use confidentil informtion to their own dvntge nd our disdvntge (reversed) We intend to shre informtion cutiously with our investors to void hving them use it to their own dvntge nd our disdvntge (reversed) Commitment We feel very little loylty to our investors Keeping our current investors is rther mtter of necessity thn desire.85 Given tht cpitl conditions remin equl, it does not mtter for us if we would substitute our current investors with others We find tht our vlues nd our investors' vlues re very similr Our investors' chrcteristics portry n imge of us to others Mintining the reltionship with our investors deserves our mximum effort Reciprocity When things go wrong, both our investors nd we respond symptheticlly to ny problem we my hve cused ech other The benefits tht we s compny provide to nd receive from our investors even out over time.79 We im to remin very flexible in meeting our investors' needs, even if we will not receive.68 contributions t present When our investors mke vluble contribution to our compny, it is importnt tht we show our pprecition right wy If we do something extr for our investors, there is n expecttion tht they will do something extr in return b c Note. All items use seven-point Likert scles (1=strongly disgree; 7=strongly gree). Note. Eliminted item. Note. Fctor lodings of items included in finl mesurement scles. (AGMs). These dt pper in reports on corporte Web pges or cme in response to specific requests Mesurement development Following Botosn (2006), this study estimtes the cost of equity cpitl s the risk-djusted discount rte tht investors pply to the firm's future csh flows to rrive t the current shre price. As proxy for future csh flows, this study collects dividend forecsts for the next fiscl yer from I/B/E/S. To complete the cost of equity clcultion, Compustt provides the current yer's shre price. Averge dily trding volume of the compnies' stock between Jnury nd September 2009 reported by Compustt represents stock liquidity. The number of nlyst estimtions nd recommendtions published per month in I/B/E/S from Jnury until September 2009 defines nlyst coverge. Shreholder ctivism is the combined number of ctivism incidents tht compny encounters between Jnury 2005 nd September 2009, ccording to the newspper dt nd voting results. Two experienced nd independent experts coded the incidents. Interrter relibility ws good: Kpp=0.91 (pb.0.001). Relevnt news events included word combintions with the compny nme nd typicl expressions, such s ngry investors, ctivism, or resolution. This study screens AGM reports for resolutions tht did not receive pprovl, including voting results tht did not cross the 75% boundry Smple description The smple consists of 26 compnies listed on the Euronext stock exchnge whose IR professionls responded to the online survey. At the time of the survey, these compnies hve in totl 184 billion of common stock outstnding, or 18% of the index's totl mrket cpitliztion. The verge mrket cpitliztion is 7.18 billion (SD= 4.64 billion). The firms re French (N=13), Dutch (N=6), Belgin (N=5), nd Portuguese (N=1). Industry sectors re divergent, including bse mterils, consumer goods, nd finncil services. 6. Results Tble 2 presents the men scores nd relted sttistics bout the distribution of the five reltionl dimensions. The spectrum of possible nswers is widely employed nd considerble vrition mrks the reltionship perspective employed towrd the investor popultion. Overll, the results confirm fvorble nd forwrdlooking ttitude towrd investors. Tble 2 Reltionl dimension perceptions. Dimension Men Std. devition Minimum Mximum Mode b Reltionship orienttion Reltionship evlution / 7.0 mode Trust Commitment Reciprocity / 5.0 b Note. Reversed score. Note. If two vlues re reported this mens they both hd the highest frequency.

6 A.O.I. Hoffmnn et l. / Journl of Business Reserch 64 (2011) Tble 3 exmines the correltions mong the five reltionl fctors. As expected, ll re positive, lthough not ll re sttisticlly significnt, which is likely becuse of this explortory study's limited smple size. The nomologicl network mongst the constructs, however, confirms ll expected reltions. For instnce, trust nd commitment correlte highly, nd reltionship orienttion correltes significntly with trust nd commitment. Tble 4 shows the results of correltion nlyses between IRMQ nd the IR outcomes. All reltions re s expected. In line with H1b, IRMQ significntly nd positively reltes to stock liquidity. As predicted by H1c, IRMQ lso positively reltes to nlyst coverge, but the effect is not sttisticlly significnt. Moreover, IRMQ reltes negtively in mrginlly significnt wy to the cost of equity cpitl nd shreholder ctivism, in line with H1 nd H1d. To check whether the previous effects re indeed driven by IRMQ rther thn other compny differences, this study exmines whether firms scoring high or low on IRMQ differ with regrd to hedqurter loction, mrket cpitliztion, industry, nd finncil performnce. No significnt differences regrding these control vribles were found. In further nlyses, this study divides the smple compnies into terciles using univrite sorting of the compnies' IRMQ score, resulting in group comprising the 33% of compnies with the lowest scores ( worst prctice), group encompssing the 33% with the highest scores ( best prctice), nd group comprising the 33% in between ( medium prctice). The groups do not differ significntly with regrd to the prior control vribles. Fig. 2 d shows the men plots of the respective IR outcomes nd IRMQ groups. Intuitively, these plots confirm the hypotheses: Compnies with high IR mngement qulity perform better in their IR outcomes thn do firms with lower IR mngement qulity. 7. Discussion 7.1. Contributions to reserch This study presents frmework tht describes the role of mrketing for nlyzing nd mnging investor reltionships. The frmework extends Srivstv et l. (1998) by treting investor reltionships s mrket-bsed ssets tht cn generte fvorble IR outcomes in the cpitl mrket. Specificlly, scoring high on the IR mngement qulity mesure correltes positively with incresed nlyst coverge, enhnced stock liquidity, lower cost of cpitl, nd reduced shreholder ctivism. The effect on nlyst coverge levels off fter n initil plteu is reched (see Fig. 2), which my cuse the sttisticl insignificnce of this specific reltionship. The findings recommend more ctive mrketing pproch, extending mrketing's tools beyond their comprtmentlized isoltion to generte Tble 3 Correltions mong reltionl dimensions. Construct Reltionship orienttion Reltionship evlution mode Trust Commitment b Reciprocity Reltionship 1 orienttion Reltionship.06 1 evlution (.40) mode Trust.43*.28 1 (.02) (.09) Commitment b.36*.11.38* 1 (.04) (.32) (.04) Reciprocity (.10) (.16) (.08) (.25) b Note. * pb.05; pb.10. Note. Reversed score. Tble 4 Correltions between IR mngement qulity nd IR outcomes. Construct IR mngement qulity Anlyst coverge Note. * pb.05; pb.10. shreholder vlue cross functions. The result would be investor reltionship mrketing (Tuominen, 1997) Mngeril implictions Trding volume Regrding IR s reltionship mngement nd investor reltionships s mrket-bsed ssets chnges the wy IR is conducted nd cknowledges the fct tht investors re driven by both economic nd ffect-bsed motivtions (Sttmn et l., 2008; Aspr nd Tikknen, 2010). The proposed philosophy moves beyond one-wy communiction, turning IR mngement into dynmic, forwrd-looking, twowy reltionl ctivity. Becuse of the high congruency mong trust, commitment, nd reltionship orienttion, mngers might concentrte on mnging these fctors simultneously. Regulr meetings with shreholders might enble the firm to express collbortive reltionship orienttion, while nurturing trust nd commitment during these interctions. Another exmple is trnsprent nd relible contct strtegy linking investors nd the compny. A proper institutionl design is importnt: To be considered trustworthy nd honest, reltionship mrketing efforts should move beyond superficil lnguge (O'Mlley nd Prothero, 2004). Finlly, tking reltionl mrket-bsed sset perspective of IR does not imply totl dependence of firm on its existing shreholders. Rther, it implies questioning the investor popultion's ppropriteness, given the compny's strtegy nd the costs of mintining the reltionships. As Srivstv et l. (1998, p. 15) recognize, the mrketbsed ssets n orgniztion possesses my not be those it needs. When coopertive reltionship orienttion leds to excessive costs or cuses too much dependence, the best thing to do my be to cese or beutifully exit the reltionship (Aljoutsijärvi et l., 1998) Limittions nd future reserch Cost of equity cpitl Shreholder ctivism.15.44* (.25) (.02) (.09) (.08) The previous results nd implictions should be interpreted within this study's limittions, ech providing venues for further reserch. First, this study's empiricl prt is explortory. A lrger smple size would llow using more dvnced sttisticl techniques. Second, n interesting reserch opportunity would relte (chnges in) IR mngement qulity directly to shreholder vlue cretion. For this purpose, dditionl reserch my mesure investors' responses to compny's IR ctivities using four-fctor finncil models or event studies (Srinivsn nd Hnssens, 2009). Third, this study focuses on reltionl mrket-bsed ssets s one of the two ctegories of mrketbsed ssets Srivstv et l. (1998) identify. Intellectul mrketbsed ssets my be eqully relevnt, but re beyond this study's scope. Investor intelligence (gthering more informtion bout their behvior nd segmenting, trgeting nd positioning bsed thereon) my lso improve IR prctice. Fourth, future reserch my investigte possible interctions mong the IR outcomes. Anlyst coverge, for exmple, my lso influence cost of equity cpitl. Overll, this study contributes to better understnding of IR nd the role of (reltionship) mrketing in this regrd. IR merits systemtic mngement, in which reltionship mrketing (tools) complement existing knowledge nd prctice.

7 902 A.O.I. Hoffmnn et l. / Journl of Business Reserch 64 (2011) Anlyst coverge for IR mngement qulity groups c Cost of equity cpitl (%) for IR mngement qulity groups (worst) 2 (medium) 3 (best) 1 (worst) 2 (medium) 3 (best) b Dily trding volume for IR mngement qulity groups d # Shreholder ctivism incidents for IR mngement qulity groups (worst) 2 (medium) 3 (best) (worst) 2 (medium) 3 (best) Fig. 2. ) Anlyst coverge nd IR mngement qulity. b) Trding volume nd IR mngement qulity. c) Cost of equity cpitl nd IR mngement qulity. d) Shreholder ctivism nd IR mngement qulity. Acknowledgements The uthors thnk the Associte Editor, Dvid Smith, nd nonymous reviewers for their comments tht improved the mnuscript. They lso thnk Jeroen Derwll, Dniel Hnn, Dominique Hnssens nd prticipnts of the 2009 Mrketing Strtegy meets Wll Street nd 2010 Mrketing Science conferences for suggestions. References Admti AR, Pfleiderer P, Zechner J. Lrge shreholder ctivism, risk shring, nd finncil mrket equilibrium. J Polit Econ 1994;102(6): Aljoutsijärvi K, Möller K, Tähtinen J. Beutiful exit: how to leve your business prtner. Eur J Mrk 1998;34(11/12): Aspr J, Tikknen H. Interctions of individuls' compny-relted ttitudes nd their buying of compnies' stocks nd products. J Behv Finnce 2008;9(2): Aspr J, Tikknen H. Consumers' stock preferences beyond expected finncil returns: the influence of product nd brnd evlutions. Int J Bnk Mrk 2010;28(3): Aspr J, Tikknen H. Corporte Mrketing in the Stock Mrket: The Impct of Compny Identifiction on Individuls' Investment Behviour. Europen Journl of Mrketing forthcoming. Ayres I, Crmton P. Reltionl investingndgency theory. Crdozo LwRev 1994;15(1033): Bhgt S, Blck B, Blir M. Reltionl investing nd firm performnce. J Finnc Res 2004;27(1):1-30. Bordonb-Juste MV, Polo-Redondo Y. Differences between short nd long-term reltionships: n empiricl nlysis in frnchise systems. J Strteg Mrk 2008;16(4): Botosn CA. Disclosure nd the cost of cpitl: wht do we know? Acc Bus Res 2006;36: Brown LF. Getting grip on investor reltions. Dir Bords 1995;19(2):44 6. Coyne KR, Witter JW. Tking the mystery out of investor behvior. Hrv Bus Rev 2002;80(99): Dy GS, Fhey L. Vluing mrket strtegies. J Mrk 1988;52(3): Deutsch M. Interdependence nd psychologicl orienttion, coopertion nd helping behviour: Theories nd Reserch New York. NY, USA: Acdemic Press; Dolphin RR. The strtegic role of investor reltions. Corp Commun Int J 2004;9(1): Dwyer FR, Schurr PH, Oh S. Developing buyer seller reltionships. J Mrk 1987;51(2): Ellis CD. How to mnge investor reltions. Finnc Anlysts J 1985;41(2): Frrgher EJ, Kleinmn RT, Bzz MS. Do investor reltions mke difference? Q Rev Econ Finnce 1994;34(4): Ferris R. Why it's importnt to understnd who owns stock. In: Nichols DR, editor. The Hndbook of Investor Reltions. Homewood, IL, USA: McGrw-Hill Eduction; Frncis J, Hnn D, Philbrick D. Mngement communictions with securities nlysts. J Acc Econ 1997;24(3): Gelb DS. Mngeril ownership nd ccounting disclosures: n empiricl study. Rev Qunt Finnce Acc 2000;15(2): Gilln SL, Strks LT. The evolution of shreholder ctivism in the United Sttes. J Appl Corp Finnce 2007;19(1): Gouldner AW. The norm of reciprocity: preliminry sttement. Am Sociol Rev 1960;25(2): Grhm JR, Hrvey CR, Rjgopl S. The economic implictions of corporte finncil reporting. J Acc Econ 2005;40(1 3):3-73. Grönroos C. Service Mngement nd Mrketing3rd ed.. Chichester, UK: John Wiley & Sons; Gundlch GT, Achrol RS, Mentzer JT. The structure of commitment in exchnge. J Mrk 1995;59(1): Hll RH. A Frmework linking intngible resources nd cpbilities to sustinble competitive dvntge. Strteg Mnge J 1993;14(8): Hnssens DM, Rust RT, Srivstv RK. Mrketing strtegy nd Wll Street: niling down mrketing's impct. J Mrk 2009;73(6): Hely PM, Plepu KG. Informtion symmetry, corporte disclosure, nd the cpitl mrkets: review of the empiricl disclosure literture. J Acc Econ 2001;31(1 3): Hely P, Hutton A, Plepu KG. Stock Performnce nd intermedition chnges surrounding sustined increses in disclosure. Contemp Acc Res 1999;16(3): Hillmn AJ, Keim GD. Shreholder vlue, stkeholder mngement, nd socil issues: wht's the bottom line? Strteg Mnge J 2001;22(2): Hong H, Hung M. Tlking up liquidity: insider trding nd investor reltions. J Finnc Intermedition 2005;14(1):1-31. Hosseini JC, Brenner SN. The stkeholder theory of the firm: methodology to generte vlue mtrix weights. Bus Ethics Q 1992;2(2): Johnsen TE, Johnsen RE, Lmming RC. Supply reltionship evlution: the reltionship ssessment process (rp) nd beyond. Eur J Mnge 2008;26(4): Krpoff JM. The Impct of Shreholder Activism on Trget Compnies: A Survey of Empiricl Findings, Working Pper. University of Wshington; Krpoff JM, Mltest PH, Wlkling RA. Corporte governnce nd shreholder inititives: empiricl evidence. J Finnc Econ 1996;42(3): Lskin AV. The vlue of investor reltions: Delphi pnel investigtion. Institute for Public Reltions; 2007.

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