Lightning Talk presented at the 'Transparency and Society - Between Promise and Peril' Herrenhausen Conference in Berlin from 12-14 June 2018.

1. Shareholder familiarity and companies’ voluntary disclosure
information environment
Leana Esterhuyse
1. Publicly traded companies: Shareholder vs management → agency problem,
information asymmetry
2. Voluntary disclosure to reduce information asymmetry (increase transparency)
between buyers and sellers (Akerlof, 1970) and to signal quality (Spence, 1973)
3. Channel → Investor relations (IR) → observed via company’s website
‘sell’ the company’s value creation process, differentiate it from competitors & optimize share
price (UK IRS, 2013)
– Quality IR leads to reduction in cost of equity, analyst forecast dispersion, bid-
ask spread, increase in institutional investors and improved share trading
(Farragher, Kleiman & Bazaz, 1994; Brennan & Tamarowski, 2000; Chang, D’Anna, Watson & Wee,
2008; Bushee & Miller, 2012; Agarwal, Taffler, Belloti & Nash, 2016; Nel, Smit & Brummer, 2018)
Background

2. Research Problem
Given the benefits of an IR programme, why is there such a divergence in online IR
practices amongst Johannesburg Stock Exchange-listed companies?
JSE has low liquidity and high block holdings
Investors’ investment horizon influences management’s behaviour. Predominantly
short-term investors are associated with:
– Lack of investment in infrastructure and R&D (Porter, 1992; Bushee, 1998; Souder et al., 2016)
– Increased return volatility (Bushee & Noe, 2000)
– 3% lower control premiums accepted by target co’s in M&As (Gaspar et al, 2005)
– Shortened strategic planning horizon, pressure to meet targets (Bailey et al., 2014)
Long-horizon investors have long-term relationship and therefore are FAMILIARFAMILIAR with:
– Quality of management (ability to deliver long-term sustainable returns)
– Risks and rewards of investee company
→ Lower demand for voluntary information disclosures → catering
Hypothesis: higher (lower) proportions of long-horizon investors are associated with
lower (higher) quality voluntary disclosures/transparency
Literature review and hypothesis

3. Methodology
Test hypothesis with OLS regression → DSt = α + β1STABt-1 + CONTROLS + ε
Proxies:
– Voluntary disclosure information environment – Online Investor Relations Disclosure Scores (DS)
– Shareholder familiarity – shareholder stability (average of 9 years’ inverse share turnover); lagged
Data sources:
– Primary data – hand collected → DS; 205 JSE companies (main board), various industries
and sizes, content analyses of websites: July – mid-Sept 2012
– Secondary data – Industry and company data – from IRESS database
• Average DS 39.8%; std dev 13.5%
• ↑ stability (familiarity); ↓DS; p < .000; Accept hypothesis
Voluntary information demand (transparency) is bounded by investors’ investment
horizon; developing market; Sub-Saharan country
→ Determine shareholders’ investment horizon BEFORE spending on increasing IR
Results
Contribution