The PR premium

The more a company distributes public relations announcements per year, the more its stock yields a significantly lower return, compared to similar companies that distribute few announcements to the public, according to a new study conducted at the University of Haifa

The more a company distributes annual announcements to the public, the more its stock yields a significantly lower return, compared to similar companies that distribute few announcements to the public, according to a new study conducted at the university. "It turns out that the annual amount of announcements published by the company, and not necessarily their design, has a significant impact on both the stock's yield and its marketability," noted Dr. Samdar Ziv, who conducted the study.

The research is based on Dr. Ziv's doctoral thesis, under the guidance of Prof. Doron Kliger from the Department of Economics at the University of Haifa. In the study, approximately 500 companies from the technology sector were examined that were traded on NASDAQ and NYSE between the years 2007 - 2001. According to Dr. Ziv, press releases are currently the most popular and common way in which a company brings information about its activities and results to the public. : both the economic and the others. These announcements contain a variety of information, starting with obligations to report to the stock exchange, such as financial reports or material transactions, continuing with the reports, which do not have an obligation to publish, but may be of great value to investors, increasing the understanding of the business environment and future prospects, and ending with announcements that are for public relations needs which are not directly related to the economic activity of a company. In the present study, the companies were characterized according to the annual number of their press releases, which were published on their website.

The companies were ranked according to the number of annual announcements they published from low to high, with the research comparing the shares of companies from the first third (companies that issued few announcements) and the last (companies that issued many announcements), on a number of levels including return and risk.

The comparison revealed that shares of companies that published a large number of announcements to the public per year showed higher levels of risk. According to Dr. Ziv, according to accepted models in finance, stocks with a higher risk are expected to give their investors a higher return. Surprisingly, it turned out that the shares of the companies that were characterized by lower risk showed a significantly higher annual return. When the differences in returns were examined while controlling for risk, the size of the company and other economic and accounting parameters, it was found that publishing a few announcements per year is responsible for this difference in returns, which is 7% - 6% in the year the announcements are published and 5% - 4% in the following year. From another statistical analysis conducted by the researcher, it emerged that every 10 additional announcements to the public lowered the annual return of the stock by 0.34% - 0.28%.

It was also found, more predictably this time, that there is a positive correlation between the extent of media coverage of companies and the number of announcements they issued to the public, so that companies that issued more announcements were covered more. It was also found that the "marketability level" - the volume of buying and selling - of the shares of companies that published many announcements was three times higher than companies that minimized the number of their announcements.

"Companies that publish many announcements to the public a year increase the interest of investors, are seen as higher quality, stronger and more leading, therefore the purchase decisions of investors may be biased and irrationally influenced by the volume of annual announcements. Also, it is easier for investors to justify purchasing decisions in these companies in their own eyes or their superiors. These emotional motives may explain the high trading volume and the willingness of investors to be satisfied with a lower return in relation to the risk," Dr. Zinn offers explanations for the anomaly she found in her research.

So is it worthwhile for the company to release many messages to the public or not? "While investors are willing to pay a high price for a stock that they perceive to be of high quality, it is clear that a low yield is against their interests. However, companies can also have a different point of view: a high share price, which leads to a low return, can be in the company's interest when, for example, it wishes to raise resources at a low cost of capital. The important finding that emerges from the research is that the scope of advertising has an impact on the stock's return and managers as well as investors should take this into account." Dr. Ziv concluded.