Behind Closed Doors: An Investigation of Investor Relations Officer Disclosures in Private Meetings with Investors

Abstract

We examine how investor relations officers (IROs) approach disclosure decisions in private meetings with investors. We provide a framework that describes the conflicting pressures that IROs face in these settings and factors that might influence private disclosure. Then we conduct an experiment to test a portion of this framework, focusing on the effects of investor types and pre-disclosure preparation. In the experiment, 133 experienced IROs evaluate information that is “gray” with respect to its materiality. We find that greater pre-disclosure preparation leads IROs to recognize the “gray area” and provide more disclosure to more preferred investors than to less preferred investors. In contrast, we find that, when IROs do less pre-disclosure preparation, they limit disclosure to both investor types. We also find that IROs rationalize not providing preferential disclosure to preferred investors after the fact through higher materiality assessments and by increasing reference to Reg FD as constraining their disclosure. Our results have implications for firms and regulators.