​Why manage Investor Relations

Maximising Shareholder Value is an integral part of management responsibility

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​A substantial body of research suggests that companies that provide quality, in-depth and more frequent disclosure enjoy a lower cost of capital, higher stock value and reduced volatility. Yet, most firms assume shareholder value is created merely through business performance. Most managements believe their sole responsibility is to just deliver business performance and shareholder value will “automatically” follow. What then explains that similar performing firms do rarely get similar valuation?

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Stock price is not just a number, it impacts real wealth and future business​

 

• Quite a few managements view valuation/stock price as something alien to their business. However, shareholders's wealth gets impacted by the stock price. Promoters are the largest shareholders, and any decline in price is an erosion of their wealth. Many promoters pledge their stocks to increase their stake in the company. Any decline in stock value can precipitate management changes, which has been witnessed even recently.
• Stock price captures how investors expect your business performance to be
   
• Fair valuation is critical to raising capital without excessive dilution. Businesses rarely can finance their growth fully- Cash flow timings and quantum are eternally an issue for most firms. Debt is not always an option due to sub-optimality, lack of access, over-leveraged, etc.
• Stock price is an effective currency for growth through acquisitions.
• ​Equity is the only way the promoters and managements get rewarded for running their businesses well, and managing the risks better. And the stock price determines how much do the promoters have to give up their stake in their company. The higher the stock price, the lower they give up!
   
• Stock price is a hedge against predatory acquisitions, particularly when promoter stakes are precariously low. Pledged shares and falling stock prices can pose significant challenge to promoters. Having satisfied Institutional shareholders on your side becomes crucial then to retain control.