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Corporate communications, marketing and social media

How does the market react to corporate communications or brand value announcements?
Has the growth of social media democratised access to investment information and improved market efficiency?

These are among the questions examined by our research in CAIR when analysing the link between corporate communications and investment risk.

Our research on corporate communications and investment risk

In their papers "Do Corporate Press Releases Drive Media Coverage?" and "The Monitoring Role of the Financial Press Around Corporate Announcements" Professors Kostas Stathopoulos and Martin Walker find that firms can influence media coverage by using press releases to highlight activity, gaining more coverage than they would have received in the absence of such press releases. However, they also find that the subsequent media articles affect market reactions more than the press release itself, as it precipitates further investigation and reporting by journalists.

New research co-authored by Dr Yifan Li argues that social media sites like Seeking Alpha have helped to democratise access to information about listed firms and improve market efficiency (in addition to better informing the share price).

Professor Marie Dutordoir co-authored a paper studying the effect of brand value announcements (from Interbrand’s Best Global Brands lists) on the stock prices of brand-owning firms. The study finds that the movement in share price is determined by whether or not the company goes up or down in the overall rankings and how the company's ranking changes year on year. The impact of brand value during a downturn is also assessed, with the researchers claiming that a strong brand tends to act like a cushion, sheltering companies from the worst effects of an economic crisis. Shareholders value this potential for prominent brands to reduce cash flow vulnerability to adverse shocks.

A study co-authored by Professor Andrew Stark shows a positive link between advertising spending and firm performance for persistent advertisers and major media advertisers in general. It concludes that information on advertising expenditures serves as a positive signal about future earnings, and investors may find this information useful in revising their estimates of a firm's valuation.