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Miriam Meckel
Qualitative Company Factors in Capital Market Communications
2006
,
Fieseler, Christian
,
Hoffmann, Christian Pieter
,
Meckel, Miriam
How a company is perceived on financial markets substantially affects its value as well as its capacity to raise much needed resources. Past research, however, has largely neglected the factors and mechanisms that affect the judgement of financial analysts, institutional investors and business journalists: In the following research paper, we argue that capital market participants are faced with the challenge of estimating the uncertain future prospects of a company. In these estimations, the financial community is forced to rely on a less comprehensive informational base than that available to the company itself. Capital market participants enhance their judgements and evaluations of companies by taking non-financial factors into account. Such factors offer information on key company features that will affect or even determine its future development. Furthermore, based on non-financial as well as financial corporate factors, the financial community develops collective judgements about a company, its reliability, stability and trustworthiness. A company is attributed with a certain capital market reputation. Based on this reputation, the financial community will be more or less critical of a company's announcements regarding its future development. It will also be more or less tolerant regarding unexpected business developments.
The qualitative, in-depth survey of 66 financial analysts, investors and financial journalists presented in this paper suggests that the process of corporate perception on capital markets is based on a range of non-financial factors, which can be grouped into 8 categories: Quality of management, strategy, communication, industry trends, corporate governance, customer & industry relations, corporate culture/employee relations and public affairs. In order to contribute to a company's value management, its financial communication function should pay close attention to the specific corporate factors that affect the judgements of capital markets participants. We believe that our research offers useful indications for the implementation of investor relations plans and activities as well as for reputation building on financial markets.