Investor Conferences, Firm Visibility, and Stock Liquidity

• Published date: 01 November 2017
• Date: 01 November 2017
• DOI: http://doi.org/10.1111/fire.12136

The Financial Review 52 (2017) 661–699

Investor Conferences, Firm Visibility,

and Stock Liquidity

Paul Brockman∗

Lehigh University

Musa Subasi

University of Maryland-College Park

Cihan Uzmanoglu

Binghamton University

Abstract

We examine the influence of investor conferences on firms’ stock liquidity. We find that

firms participating in conferences experience a 1.4% to 2.8% increase in stock liquidity com-

pared to nonconference firms. Consistent with investor conferences improving firm visibility,

the increase in liquidity is larger for firms with low pre-conference visibility and varies pre-

dictably with conference characteristics that affect the ability of investorsto revise their beliefs

about the firm. However, for firms with a large investor base and high visibility, conference

participation is associated with a decline in stock liquidity,consistent with investor conferences

exacerbating the information asymmetry among investors.

Keywords: investor conferences, firm visibility, stock liquidity

JEL Classifications: G14, G23, G31

∗Corresponding author: Perella Department of Finance, College of Business and Economics, 621 Taylor

Street, Lehigh University,Bethlehem, PA 18015; E-mail: pab309@lehigh.edu.

Wethank Ji-Chai Lin, Umit Gurun, Ferhat Akbas, Rajesh Narayanan, and seminar participants at Louisiana

State University,Binghamton University, and the 2014 FMA Annual Meeting for valuable comments, and

Xiang Gao for excellent research assistance. We are especially thankful to Srinivasan Krishnamurthy

(Editor) and two anonymous referees, whose insightful comments helped us improve the paper greatly.

C2017 The Eastern Finance Association 661

662 P.Brockman et al./The Financial Review 52 (2017) 661–699

1. Introduction

Brokerage firms and industry associations organize thousands of investor con-

ferences each year that allow investors and analysts to have face-to-face interactions

with C-level executives.Firms invited to conferences can give webcast presentations

followed by question and answer (Q&A) sessions or meet privately with interested

investors in offline sessions. Consistent with investor conferences increasing firm

visibility, recent studies show that institutional ownership and analyst following in-

crease after these events (Bushee, Jung and Miller, 2011; Green, Jame, Markov

and Subasi, 2014b). This increase in firm visibility can improve stock liquidity. In

contrast, since selective access to management at conferences provides benefits to

certain investors (Bushee, Jung and Miller, 2013), information asymmetry between

investors can increase after conferences, leading to a decline in stock liquidity.In this

paper, we examine the effect of conferences on firms’ stock liquidity and explorethe

types of firms that are more likely to enhance their stock liquidity by participating at

conferences.

The extensive literature on stock liquidity shows that corporate policies that

increase a company’s visibility also improve the liquidity of its securities. Investor

conferences help companies build or maintain their visibility by facilitating face-to-

face interactions with potential investors and analysts. Investors and analysts have

incentives to participate in these conferences because they update their prior beliefs

about the firm through face time with the executives or through discussions with

other participants. According to Chris Hodges, founder of the Alpha IR Group, many

investment funds now have policies against taking a stake in a company before

meeting with the Chief Executive Officer (CEO). He advises executives of mostly

small- to mid-cap companies to devote at least one or two days a month to investor

meetings because “if they don’t play Wall Street’s game, it really does have an

impact on their valuation.”1In response to increasingly higher demand for face time

by investment funds and in an effort to increase firm visibility among investors,

CEOs and Chief Financial Officers (CFOs) devote a significant portion of their time

preparing for and traveling to these conferences. Companies go to an average of nine

investor conferences a year and CEOs (CFOs) spend on average 17 (26) days per

year on such investor relations.2

In contrast, participating in investor conferences may lead to a decline in a

firm’s stock liquidity and an increase in its cost of equity capital. Recent studies show

that investors who meet with firm executives at investor conferences glean material

nonpublic information (Bushee, Jung and Miller, 2011, 2013; Solomon and Soltes,

2013; Green, Jame, Markov and Subasi, 2014a,b). Therefore, investor conferences

can increase the quantity and quality of private information available to investors

1Kwoh, L. (2012, November 29). Investorsdemand CEO face time, Wall Street Journal.

2Cross Borders, Global Survey on Roadshow Practices, 2010.

P.Brockman et al./The Financial Review 52 (2017) 661–699 663

who are physically present at conferences, while other investors remain uninformed

and therefore disadvantaged. Faced with this information risk, uninformed investors

may demand higher returns as informed investors are better able to adjust their

portfolio weights to incorporate the new information theyglean at conferences (Easley

and O’Hara, 2004). Hence, participating in conferences may increase information

asymmetry among a firm’s investors, thereby reducing the firm’s market liquidity

and increasing its cost of equity capital.

In this study, we analyze a sample of 56,922 conference presentations made by

2,888 companies between January 2005 and December 2010. We first explore firm

characteristics that are associated with a firm attending an investor conference.3We

find that firms with better performance, higher research and development (R&D)

expenditures, lower dividend payouts, and greater visibility (e.g., higher institu-

tional ownership, more analyst following, greater stock liquidity,larger investor base,

greater availability of credit ratings, and Standard & Poor’s (S&P) 500 index mem-

bership) are more likely to participate in conferences. In addition, firms in highly reg-

ulated industries (e.g., energy, telecommunications) are also more likely to present at

conferences.

Next, we examine the impact of conference presentations on stock liquidity. We

run firm-quarter panel regressions of changes in various measures of stock liquidity

on a conference participation indicator and firm characteristics that the prior literature

suggests affect stock liquidity. We find that the change in stock liquidity is roughly

1.4% to 2.8% larger (significant at conventional statistical levels) for firm-quarters

where the firm participates in at least one conference than other firm-quarters where

the firm does not participate in any conference. The marginal impact of conference

presentations on stock liquidity decreases as the number of conferences attended

increases. Depending on the liquidity measure used, one to two conferences in a

quarter are associated with the greatest improvement in stock liquidity.

Further, we find that liquidity improvements are greater for firmswith relatively

lower pre-conference visibility (i.e., informationally opaque firms), consistent with

investor conferences increasing firm visibility. However,we also find that firms with

a large investor base and high visibility experience a reduction in stock liquidity

with conference participation, suggesting that investor conferences can also increase

information asymmetry as investorswho are physically present at conferences become

more informed about the firm than investors who are not at the conference.

To shed further light on the mechanism underlying these liquidity changes, we

investigate the influence of conference characteristics on a firm’s stock liquidity. We

find that conferences with a larger number of presenting firmslead togreater improve-

ments in liquidity. Furthermore, conference firms experience largerimprovements in

stock liquidity when the conference host offers equity research services or is a highly

3We include selected excerpts from PotashCorp’s 2010 conference presentation in Supplementary Ap-

pendix A as an example.