Determinants and consequence of web-based investor relations in Malaysia

Abstract

The need to compete effectively for investment funds has become increasingly crucial for publicly listed companies in a stock exchange. In this regard, investor relations (IR) function plays a vital role in engaging with the investment community to expand the shareholder base. The advancement in internet technology has enabled companies to use the corporate website as an alternative medium for IR. However, given the voluntary nature of IR activities on the Web, prior web-based investor relations (WIR) studies evidenced substantial cross-sectional variation in the extent of WIR across companies as well as across countries. Given this and the limited WIR studies in Malaysia, the current study seeks to assess the extent to which the corporate websites are used for IR activities. This study also aims to examine the cross-sectional variation in the WIR practice by examining the influence of four groups of variables, namely, ownership structure, board characteristics, environment and company characteristics. Besides, this study also analyses the impact of WIR on firm value. The extent of WIR is measured using a disclosure index that comprises 152 items. Using a sample of 258 non-financial companies listed on the Main Market of Bursa Malaysia in 2015, the mean for overall WIR disclosure is 40%, which indicates that the extent of WIR is still limited. Generally, the finding suggests that companies mostly lack the information to help investors in their investment decision process. Further, this study employs a multi-theoretical approach. Several theories, namely, agency, signalling, capital need, legitimacy, institutional and diffusion of innovation theory was used in developing the testable hypotheses. The multivariate analysis shows that board independence, board size, media exposure, membership in IR association and listing age are significantly associated with the extent of WIR of the surveyed companies. In addition to identifying the determinants of WIR, this study examines the relationship between WIR and performance of the companies, using market-based measures. The findings indicate that WIR has a positive and significant relationship with firm value as measured by Tobin’s Q ratio. Such findings provide evidence that should be of interest mainly to public listed companies in Malaysia regarding the importance of WIR as an alternative medium of information disclosure. Notably, the findings should motivate the companies to differentiate themselves by self-adapting better WIR practices, which in turn have the potential to enhance their market performance. For the market regulators, the findings would provide a benchmark to improve comparability of IR information on the websites.