From printed AFS to online communication

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CHAPTER 3 ONLINE INVESTOR RELATIONS PRACTICES

Introduction

The previous chapter described various theories for why company management engages in voluntary disclosures. This chapter discusses how the practice of IR developed. The chapter starts with a short history of how financial reporting evolved from traditional, paper-based audited AFS to the practice of publishing the annual report and other voluntary information on a company’s website in various formats. Three models that describe the stages of the adoption of online communication are presented.
Due to the increasing complexity of capital market disclosures, the communication strategies that companies employ are now largely the domain of IR specialists, working in conjunction with the financial director or chief financial officer (CFO) and the chief executive officer (CEO). Prior research has provided some evidence on what types of information users want to see on IR webpages and the benefits to companies of having effective IR programmes. An overview of IR practices in South Africa, with some views from users and practitioners is then presented. This serves as a background to and motivation for the first primary objective of the study.

From printed AFS to online communication

According to Crowther (2000), there are four broad stages in the evolution of the format and function of corporate reporting through the twentieth century and up to the present.

Stage 1: Before 1940

The distinction between the company and its environment was recognised, but a deliberate choice was made to ignore the external environment. Corporate reporting was simply a way for the managers and the owners of the business to communicate. The communication was retrospective – it simply reported past actions and results. Results were what mattered and the annual report was merely deemed an effective means of communicating those results to the owners (the existing shareholders). The main emphasis was accountability to the shareholders only (Crowther, 2000:1843).

Stage 2: From 1940 to 1975

In this period, the company and its managers recognised the existence and importance of the external environment and the need to attract additional investment for expansion projects and other purposes. The orientation of reports thus shifted towards potential investors. To attract new investment, there was an increasing focus on future prospects for the company, rather than only past performance. Crowther (2000:1843) argues that in this stage the agency relationship between managers and shareholders started to weaken. Managers began to view themselves as being in a relationship with any investors (current and potential) in the business, rather than only with the current owners of the business. In this stage, past results and future prospects for the company were the issues that mattered, and annual reports remained an effective means of communication only. The emphasis began to shift towards forward-looking information that could be used for decision-making purposes (Crowther, 2000:1843).

Stage 3: From 1975 to 1995

Companies no longer sought to communicate only internally, to existing shareholders or potential shareholders, but began widening their focus to include the external environment. Results no longer mattered: they were still included in annual reports, but became less prominent. Future prospects mattered more. The forward orientation did not focus on the economic prospects of the company, but on prospects for shareholders in terms of rewards – both dividends and share price increases. The annual report acknowledged other stakeholder groups and sought to demonstrate good corporate citizenship by including employees, customers and the local community in its intended audience. This resulted in annual reports becoming not only a communication medium, but also a mechanism for self-promotion. The results of the past performance were no longer of primary importance; the image of the company was. The production and distribution of the report became a major event on the corporate calendar (Crowther, 2000:1844).

Stage 4: Since 1995 and online

This is the age of electronic communication and reporting. The performance of the company is now included in a wider range of information concerning the company. The Internet is used as another communication channel. The company’s image is still important, and companies vie with each other to have the most elaborate, spectacular and entertaining websites (Crowther, 2000:1844).
In order to engage users online (including investors), the usability of a company’s website becomes a crucial consideration. Usability as a general term is defined by ISO 9241-11 as …the extent to which a system can be used by specified users to achieve a specified goal with effectiveness, efficiency and satisfaction in a specified context of use. (ISO, 1998) Useful websites are described by Nielsen (2012), a usability expert, as having the following:
Utility = whether it provides the features [and information] you need.
Usability = how easy and pleasant these features are to use.
Useful = utility + usability.
Loranger and Nielsen (2009) conducted usability tests of 94 IR websites with individuals and investment professionals, which resulted in the publication of 103 usability guidelines focusing specifically on online IR. The aim of usability guidelines is to help companies to get users to the right information swiftly, to make websites easy to view, and to make it easy for those who view the sites to use the information. Nielsen (2011) reported that websites need to attract a visitor’s attention within ten seconds; otherwise, visitors leave the site in increasing numbers during the next 20 seconds. Accounting for Sustainability et al. (2012:42) also recommends that companies “should be mindful not only of content but the usability of websites.”
The short history above illustrates how companies have moved from reporting in printed format to communicating with investors online. The next section describes models of how companies implement the Internet as a communication medium.

CHAPTER 1 INTRODUCTION 
1.1. Background
1.2. Investment horizon and familiarity
1.3. Research problems
1.4. Research objectives
1.5. Research hypothesis
1.6. Research design and methodology
1.7. Ethical clearance
1.8. Contribution
1.9. Limitations
1.10. Outline of the study
CHAPTER 2 VOLUNTARY DISCLOSURE 
2.1. Introduction
2.2. Theoretical motivations
2.3. Investors’ information needs
2.4. Hurdles to fuller voluntary disclosure
2.5. Summary and conclusion
CHAPTER 3 ONLINE INVESTOR RELATIONS PRACTICES
3.1. Introduction
3.2. From printed AFS to online communication
3.3. Online communication: Adoption models
3.4. Role of the Investor Relations (IR) department
3.5. Users’ perceptions
3.6. Benefits for the company from having an IR programme
3.7. Investor relations in South Africa
3.8. Summary and conclusion
CHAPTER 4 LONG HORIZONS AND SHAREHOLDER FAMILIARITY
4.1. Introduction
4.2. Characteristics of the Johannesburg Stock Exchange (JSE)
4.3. Comparing the disclosure regime of the SEC to the JSE
4.4. Prior literature on predictors of online investor relations quality
4.5. Shareholder familiarity hypothesis
4.6. Controls
4.7. Proposed model of online investor relations practices in South Africa
4.8. Summary and conclusion
CHAPTER 5 DESIGN AND METHODOLOGY 
5.1. Introduction
5.2. Research paradigm
5.3. Research objectives
5.4. Research design
5.5. Sample
5.6. Content analysis
5.7. Regression model
5.8. Reliability, validity and limitations
5.9. Summary and conclusion
CHAPTER 6 RESULTS AND DISCUSSION FROM THE CONTENT ANALYSIS 
6.1. Introduction
6.2. Overall findings for 205 companies and top 100 companies
6.3. Main findings per category
6.4. Stage of online IR in South Africa
6.5. Summary and conclusion
CHAPTER 7 RESULTS AND DISCUSSION OF THE REGRESSION MODEL 
7.1. Introduction
7.2. Descriptive statistics
7.3. Comparison of mean disclosures scores of categorical variables
7.4. Univariate analyses
7.5. Multivariate analyses
7.6. Final model
7.7. Robustness tests
7.8. Summary and conclusion
CHAPTER 8 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
8.1. Introduction
8.2. Research problems and objectives
8.3. Research methodology and main findings regarding the research objectives
8.4. Contribution
8.5. Practical recommendations from the study
8.6. Suggestions for future research
REFERENCES
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VOLUNTARY DISCLOSURE, LONG-HORIZON INVESTORS AND SHAREHOLDER FAMILIARITY – AN ONLINE INVESTOR RELATIONS PERSPECTIVE