Investor Relations as Strategic Communication: Insights from Evolutionary Psychology

Abstract

ABSTRACT The investor relations (IR) function emerged from the need to limit information asymmetries between management and shareholders. As a result, the mandatory disclosure of material information is at the heart of the IR task. Over the years, however, investor relations has evolved into a strategic communication function, responsible for a wide array of voluntary disclosure activities, for relationship management, and executive advisory. Empirical studies document the positive impact of these IR efforts on share prices. Notably, these empirical insights point to tensions emanating from a strategic IR role: According to current regulatory frameworks, voluntary communication beyond mandatory disclosures should not be price-sensitive, and thus should not affect corporate value. To date, there is no authoritative theoretical account for the strategic role of investor relations. Some argue that IR shapes investor perceptions through sensegiving, by fostering social ties, or due to investors’ cognitive biases. This contribution proposes that evolutionary psychology allows for a more comprehensive theoretical account of the strategic role of investor relations. It reviews insights from evolutionary psychology and relates them to established concepts and empirical findings from IR research. It discusses avenues for future research and limitations to an evolutionary psychology perspective on strategic investor relations.