2 014 S T U D Y O N H O W I N V E S T M E N T H O R I Z O N
A N D E X P E C TAT I O N S O F S H A R E H O L D E R B A S E
I M P A C T C O R P O R AT E D E C I S I O N - M A K I N G
TA B L E O F C O N T E N T S
Executive Summary and Key Findings............... 1
Review of Findings......................................... 3
Demographics............................................. 14
Methodology............................................... 16
About the Authors........................................ 17
About NIRI and the Rock Center.....................18
Contact Information...................................... 18
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 1
Executive Summary and Key Findings
Nearly all companies prefer long-term investors but about half of investors have a shorter horizon —
with significant consequences for companies’ strategic decisions and stock market performance
Nearly all companies describe their ideal shareholder as having
a long-term investment horizon but about half of companies’
shareholder base has a short-or medium-term horizon. As a
result, most companies see significant upside to managing their
shareholder base and senior leaders spend considerable time
meeting with current and prospective investors.
“More than three-quarters of companies in our survey see
significant stock market benefits from managing their shareholder
base,” says Professor Anne Beyer, Associate Professor of
Accounting at the Stanford Graduate School of Business and
co-author of the study. “Companies believe that if they can
identify and attract the right shareholder base, they will be able to
increase the price of their stock and decrease its volatility.”
“Companies want long-term shareholders in particular because
it allows them to implement their corporate strategy and make
long-term investments without the distraction and short-term
performance pressures that come from active traders,” says
Professor David F. Larcker, James Irvin Miller Professor of
Accounting and Senior Faculty at the Rock Center for Corporate
Governance. “We find that the investor relations department can
create a real competitive advantage by attracting a shareholder
base with the same long-term investment horizon as the
company.”
However, being able to make strategic acquisitions is generally not
a concern even if the shareholder base is dominated by investors
with short-term investment horizons (only 26% of companies
indicate strategic acquisitions as an area of concern).
“Investors with short-term horizons pay close attention not only to
stock prices in the near term but also the companies’ short-term
performance as reported in their financial statements. If shortterm projects yield lower returns on investment than long-term
projects as it is often the case, a shareholder base dominated by
short-term investors can become a real challenge for companies,”
says Professor Larcker.
The ideal shareholder base consists of long-term
investors – still “long-term” is not that long
Companies are most likely to describe their ideal shareholder as
having a “long-term investment horizon,” with the vast majority
(92%) listing this quality. Still, a “long-term” investment horizon
doesn’t have to be that long. On average, companies estimate the
investment horizon of a typical long-term investor to be at least
2.8 years. By contrast, short-term investors are seen as having an
investment horizon of 7 months or less.
The study, conducted in partnership with the National Investor
Relations Institute (NIRI), surveyed 138 investor relations
professionals at North American companies about the investment
horizon and expectations of their shareholder base and the impact
that these have on corporate decision-making.
Not surprisingly, most companies agree or strongly agree that
desirable shareholders are not activists (87%). About two-thirds
of companies don’t want a concentration of ownership and pay
attention to the price at which an investor acquired a company’s
shares. The geographical location in which the shareholder
resides plays virtually no role with only 7% of the companies
deeming this an important shareholder characteristic.
Companies believe that short-term investors distract
from strategic decisions
Companies want to increase ownership of
management, employees and pension funds
Nearly two-thirds of companies (65%) agree or strongly agree that
a company whose shareholder base is dominated by short-term
investors cannot focus on strategic decisions because of a focus
on short-term results. Just over half (51%) believe that short-term
investors lead a company to focus on cost cutting. The majority
of companies (57%) agree or strongly agree that a company
whose shareholder base is dominated by short-term investors
will have reduced market value and/or reduced long-term growth.
Top management and corporate directors are seen as having the
longest investment horizon among major shareholder groups, with
93% and 92% of companies describing their investment horizon
as long-term or somewhat long-term, respectively. Among other
major shareholder groups, pension funds are seen as having the
longest investment horizon.
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making Companies don’t want hedge fund or private
equity investors
When asked to describe their ideal shareholder base, companies
are most likely to want hedge funds to own a lower percentage of
their shares. Currently, companies report that approximately 8% of
their shares are held by hedge funds. Ideally, this figure would be
3%, a 60 percent reduction. One reason for the reduction seems
to be that hedge fund investors are seen as short-term oriented.
94% of companies believe that hedge funds have a short-term or
somewhat short-term investment horizon. Zero companies believe
they have a long-term horizon.
Also, all companies that reported being partially owned by private
equity (PE) want to reduce the ownership of PE investors. In fact,
all of these companies want to see the ownership of PE investors
go down to zero.
Companies believe that their stock price would be
higher if they had their ideal shareholder base
Most companies (80%) believe that their stock price would
trade higher over a two to three year period if they could
attract their ideal shareholder base. On average, companies
estimate their stock would rise 15% and share price volatility
decrease 20%. These stock-market effects seem to be driven
by companies’ beliefs that a more suitable shareholder base
would allow management to implement the company’s strategy
more effectively, put less pressure on management to focus
on short-term results, and provide higher quality feedback on
management’s decision. Three-quarters of companies (76%)
agree or strongly agree with at least one of these three factors
being a benefit of attracting their ideal shareholder base.
2
“Companies see very large, tangible benefits to managing their
shareholder base, so there seems to be a real opportunity for
some companies to improve corporate decisions and increase
their value by paying close attention to who holds their shares,”
says Professor Beyer.
Senior leaders spend considerable time managing
their shareholder base
Almost all companies (91%) discuss the composition of their
shareholder base at the senior executive level. A large majority
(75%) discusses this at the board level. On average, the
CEO spends 4.2 days per quarter managing the company’s
shareholder base. As might be expected, the CFO spends even
more time – 6.4 days on average.
“The amount of time senior leaders spend on developing their
company’s shareholder base shows a real recognition of the
importance of shareholder characteristics for a company’s
performance. Understanding how shareholders affect management
decisions is key for any company,” says Professor Larcker.
Companies rely on road shows and investor
conferences – fewer companies actively reach out to
potential investors
When it comes to actively managing their shareholder base,
companies most frequently rely on investor conferences, road
shows, and meetings of current and potential shareholders
with top management or members of the board. About threequarters of the companies use these tools at least on a quarterly
basis. Significantly fewer companies actively approach potential
shareholders with more than 40% of companies pursuing this
strategy less than twice a year.
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 3
Review of Findings
Composition of Shareholder Base
Cost cuttingPercent
1. What is the investment horizon of a typical investor
(in years)?
17
Extremely important
Short-term investor
0.6 years or less
Medium-term
Between 0.9 and 2.3 years
Long-term
2.8 years or longer
2. How important are the following to a long-term investor?
69
Somewhat important
14
Not at all important
Next quarter’s earningsPercent
Payout policy (dividends and share repurchases)Percent
1
Extremely important
46
Extremely important
67
Somewhat important
46
Somewhat important
31
Not at all important
8
Not at all important
Stable/smooth earnings pathPercent
49
Active engagement with the company regarding
management decisionsPercent
Extremely important
45
30
Extremely important
Somewhat important
47
7
Not at all important
Somewhat important
22
Not at all important
Growth opportunitiesPercent
95
Sustainability of the firm’s business modelPercent
Extremely important
98
5
Somewhat important
0
Extremely important
2
Somewhat important
Not at all important
0
Not at all important
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 4
3. What is the typical investment horizon of the following
shareholder groups?
Retail shares held in street namePercent
Active Fund -GrowthPercent
13
Long-term
6
Long-term
21
Somewhat long-term
Somewhat long-term
33
33
38
Medium-term
Medium-term
23
Somewhat short-term
19
Somewhat short-term
9
Short-term
4
Short-term
Retail shares held in personal namePercent
Active Fund – ValuePercent
25
17
Long-term
Long-term
22
Somewhat long-term
Somewhat long-term
41
30
30
Medium-term
Medium-term
17
Somewhat short-term
11
Somewhat short-term
4
Short-term
1
Short-term
Passive Fund – IndexPercent
Hedge Fund; long/short positionsPercent
46
0
Long-term
Long-term
31
Somewhat long-term
Somewhat long-term
13
Medium-term
6
Medium-term
6
Somewhat short-term
28
Somewhat short-term
4
Short-term
Short-term
0
67
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making Pension Fund PrivatePercent
5
Activist IndividualPercent
39
1
Long-term
39
Somewhat long-term
3
Somewhat long-term
20
Medium-term
17
Medium-term
2
Somewhat short-term
Somewhat short-term
Long-term
39
0
41
Short-term
Short-term
Pension Fund UnionsPercent
Activist FundPercent
36
1
Long-term
46
Somewhat long-term
4
Somewhat long-term
16
Medium-term
Medium-term
2
Somewhat short-term
Somewhat short-term
Long-term
22
36
0
37
Short-term
Short-term
Pension Fund PublicPercent
Top ManagementPercent
42
Long-term
77
Long-term
46
Somewhat long-term
16
Somewhat long-term
12
Medium-term
4
Medium-term
1
Somewhat short-term
3
Somewhat short-term
0
Short-term
0
Short-term
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making Directors of the companyPercent
76
6
4. What is the current composition of your company’s
shareholder base?
Long-term
Percent
16
Somewhat long-term
7.6
Retail shares held in street name
6
Medium-term
3.7
Retail shares held in personal name
2
Somewhat short-term
14.3
Passive Fund – Index
0
Short-term
23.0
Active Fund – Growth
Employee stock ownership plan (ESOP)Percent
15.3
Active Fund – Value
53
Long-term
8.1
Hedge Fund; long/short positions
22
Somewhat long-term
1.8
Pension Fund Private:
18
Medium-term
0.9
Pension Fund Unions
4
Somewhat short-term
1.7
Pension Fund Public
3
Short-term
0.4
Activist Individual
1.3
Activist Fund
5.0
Top Management
3.4
Directors of the company
1.4
Employee stock ownership plan (ESOP)
8.7
Other
3.4
Unknown
Note: The differences between Q4 and Q10 is due to different sample
sizes. For Q10, the sample size is smaller than for Q4. The “Actual”
column on Q10 only includes the firms that responded to the question of
the “Ideal” shareholder base.
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 5. How would you characterize the investment horizon of your
company’s current shareholder base?
7. How frequently do you employ the following strategies in
order to actively manage your company’s shareholder base?
Percentage of shareholder base best described asPercent
Road showsPercent
9.5
Exclusively short-term
More than quarterly
12.2
Somewhat short-term
Quarterly
37
39
24.7
Medium-term
12
Semi-annually
24.1
Somewhat long-term
5
Annually
25.6
Exclusively long-term
7
Less than annually
4.0
Unknown
Investor conferencesPercent
50
Management of Shareholder Base
More than quarterly
6. Is the composition of the shareholder base discussed at the
C-level or Board in your company?
Quarterly
Board-LevelPercent
33
7
Semi-annually
75
7
Annually
13
No
2
Less than annually
12
Don’t know
Identify and actively approach shareholders (targeting)Percent
C-LevelPercent
29
More than quarterly
Yes
91
Yes
28
Quarterly
7
No
15
Semi-annually
2
Don’t know
12
Annually
16
Less than annually
7
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making Capital Market Day (company specific, no conference)Percent
2
More than quarterly
0
8
8. How much time do the following executives spend actively
managing shareholder base (days/quarter)?
CEO – 4.2 days/quarter
CFO – 6.4 days/quarter
Quarterly
2
Semi-annually
32
9. How much time does the investor relations function spend
actively managing the shareholder base (days/quarter)?
31.3 days/quarter
Annually
64
Less than annually
Enable meetings of current shareholders with
board members and/or top managementPercent
49
More than quarterly
22
Ideal Target/Shareholder Base
10. Describe your ideal or best possible composition of
your company’s shareholder base versus your actual
shareholder base:
Ideal
ActualDifference
Retail shares held in street name
5.8%
7.4%
-1.6%
Retail shares held in personal name
3.7%
3.9%
-0.2%
Quarterly
Passive Fund - Index 15.3%
14.6%
0.7%
9
Semi-annually
Active Fund -Growth
25.0%
23.0%
2.0%
Active Fund - Value
16.9%
14.6%
2.3%
8
Annually
Hedge Fund; long/short positions 3.2%
8.4%
-5.2%
Pension Fund Private 3.9%
1.4%
2.5%
12
Less than annually
Pension Fund Unions 1.6%
1.0%
0.6%
Pension Fund Public 3.6%
2.0%
1.6%
Activist Individual
0.0%
0.0%
0.0%
Activist Fund
0.0%
1.3%
-1.3%
Top Management
6.1%
4.3%
1.8%
Directors of the company
3.2%
3.6%
-0.4%
Employee stock ownership plan (ESOP) 3.1%
1.4%
1.7%
Other 2.7%
9.8%
-7.1%
Unknown 6.1%
3.5%
2.6%
Enable meetings of prospective shareholders with
board members and/or top managementPercent
48
More than quarterly
26
Quarterly
8
Semi-annually
5
Annually
13
Less than annually
Note: The differences between Q4 and Q10 is due to different sample
sizes. For Q10, the sample size is smaller than for Q4. The “Actual”
column on Q10 only includes the firms that responded to the question of
the “Ideal” shareholder base.
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 11. To what extent do you agree with the following statements?
“If the company attracted its ideal/target shareholder base…:”
Management would face less pressure to focus
on short-term results
Percent
12
Strongly agree
Management could more easily pursue
value-enhancing strategic M&A transactionsPercent
7
Strongly agree
46
24
Agree
Agree
24
Neither agree nor disagree
Neither agree nor disagree
46
15
20
Disagree
Disagree
3
Strongly disagree
4
Strongly disagree
Management could implement the company’s strategy
more effectivelyPercent
Shareholders would provide higher quality feedback
on management’s decisionPercent
6
Strongly agree
14
Strongly agree
33
34
Agree
Agree
37
Neither agree nor disagree
38
Neither agree nor disagree
19
Disagree
10
Disagree
5
Strongly disagree
4
Strongly disagree
Management could make better investment decisionsPercent
Board would be able to focus on business rather
than appeasing certain shareholdersPercent
6
Strongly agree
8
Strongly agree
24
Agree
25
Agree
42
Neither agree nor disagree
38
Neither agree nor disagree
21
Disagree
22
Disagree
7
Strongly disagree
7
Strongly disagree
9
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 10
12. To what extent do you agree with the following statements?
“The ideal/target shareholder for our company is characterized by:”
Holding only long positionsPercent
Non-activistPercent
14
Strongly agree
Strongly agree
41
48
46
Agree
Agree
18
Neither agree nor disagree
11
Neither agree nor disagree
19
Disagree
2
Disagree
2
Strongly disagree
Strongly disagree
Ownership not over 10%Percent
Invested at a price below current pricePercent
16
Strongly agree
11
Strongly agree
0
48
46
Agree
Agree
23
Neither agree nor disagree
37
Neither agree nor disagree
12
Disagree
7
Disagree
1
Strongly disagree
1
Strongly disagree
Ownership not over 5%Percent
Invested at a price close to current pricePercent
5
Strongly agree
Strongly agree
0
24
21
Agree
Agree
36
Neither agree nor disagree
Neither agree nor disagree
63
32
15
Disagree
Disagree
4
Strongly disagree
2
Strongly disagree
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making Long-term investment horizonPercent
51
Strongly agree
11
Pursues investment strategy focused on growthPercent
15
Strongly agree
41
54
Agree
Agree
8
Neither agree nor disagree
25
Neither agree nor disagree
0
6
Disagree
Disagree
0
0
Strongly disagree
Strongly disagree
Medium-term investment horizonPercent
Pursues investment strategy focused on valuePercent
12
Strongly agree
7
Strongly agree
69
57
Agree
Agree
18
Neither agree nor disagree
28
Neither agree nor disagree
1
Disagree
8
Disagree
0
Strongly disagree
1
Strongly disagree
Short-term investment horizonPercent
Has preference for increase in dividend paymentsPercent
Strongly agree
0
6
Strongly agree
8
Agree
Agree
22
Neither agree nor disagree
34
Neither agree nor disagree
28
46
22
Disagree
Disagree
24
Strongly disagree
11
Strongly disagree
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 12
Votes consistently with managementPercent
Possesses substantial industry expertisePercent
20
Strongly agree
6
Strongly agree
37
37
Agree
Agree
37
Neither agree nor disagree
Neither agree nor disagree
6
Disagree
9
Disagree
0
4
Strongly disagree
Strongly disagree
Does not votePercent
1
Strongly agree
44
13. Do you expect that a change in your shareholder base toward
your ideal/target composition would have a positive impact
on your share price over the next two to three years?
Percent
3
Agree
80
Yes
33
Neither agree nor disagree
20
No
42
Disagree
20
Strongly disagree
14. Suppose you could change the composition of your
shareholder base such that the ownership of an ideal
investor as described above increases by 10% which of the
following benefits would you expect to realize over the next
two to three years:
Resides in a specific geographical locationPercent
0
Increase in share price – 15.4% increase
Strongly agree
7
Agree
Decrease in volatility – 19.6% decrease
37
Neither agree nor disagree
Increase in trading volume – 5.9% increase
33
Disagree
23
Strongly disagree
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 13
15. Suppose a company in your industry has a shareholder base that is dominated by investors with short-term investment horizons.
To what extent to you agree with the following statements?
“A company with a shareholder base that is dominated by investors with short-term investment horizons…”
Has reduced market valuePercent
Focuses on cost-cuttingPercent
7
Strongly agree
7
Strongly agree
34
44
Agree
Agree
40
Neither agree nor disagree
36
Neither agree nor disagree
20
12
Disagree
0
Strongly disagree
1
Strongly disagree
Has reduced long-term growthPercent
Cannot effectively implement the company’s strategyPercent
6
Strongly agree
2
Strongly agree
Disagree
36
37
Agree
Agree
36
Neither agree nor disagree
40
Neither agree nor disagree
22
Disagree
19
Disagree
0
Strongly disagree
Cannot focus on strategic decisions because
of the focus on short-term successPercent
7
Strongly agree
2
Strongly disagree
Is restricted from making strategic acquisitionsPercent
3
Strongly agree
22
58
Agree
Agree
45
21
Neither agree nor disagree
Neither agree nor disagree
13
Disagree
Disagree
25
0
Strongly disagree
4
Strongly disagree
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 14
Demographic Information
What is the annual budget for Investor Relations in your company
(excluding annual report costs and listing fees but including staff
salaries and benefits as well as allocated overhead)?
$818,423 mean
$550,000 median
What is the industrial sector for your company?
Percent
2
Business Services
2
Chemicals
How many people work in Investor Relations in your company?
2 mean
2
Commercial Banking
1
Commodities
2 median
How frequently do you use outside Investor Relation consultants?
Percent
23
On an ongoing basis
39
Occasionally
38
Never
2
Communications
7
Computer Services
9
Electronics
7
Energy
10
Financial Services (other than commercial banking)
What is the revenue for your company?
Percent
15
<$500 million
19
$500 million to $1 billion
39
$1 billion to $5 billion
12
$5 billion to $10 billion
9
$10 billion to $20 billion
7
>$20 billion
4
Food and Tobacco
7
Industrial and Transportation Equipment
2
Insurance
2
Lumber and Paper
12
Other Manufacturing
8
Other Services
5
Retail Trade
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making What is the industrial sector for your company? (continued)
15
How long have you been employed in investor relations?
Percent
0
Transportation
7
Less than one year
3
Utilities
10
1 – 2 years
1
Wholesale Trade
8
3 – 4 years
13
Other
11
5 – 6 years
What is your gender?
12
7 – 10 years
Percent
61
21
11 – 15 years
39
19
16 – 20 years
Male
Female
11
20 – 30 years
What is your age?
Percent
1
31+ years
3
<30
23
31 to 40
37
41 to 50
27
51 to 60
9
61 to 70
0
>70
What is your title?
Percent
39
Vice President
12
Senior Vice President
1
Executive Vice President
31
Director
9
Manager
7
Other
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making Methodology
Results are based on the survey of 138 investor relations professionals conducted between February and March 2014.
16
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 17
About the Authors
Anne Beyer
Brian Tayan
Anne Beyer is an Associate Professor of
Accounting at the Stanford Graduate
School of Business and former Michelle
R. Clayman Faculty Scholar. Anne’s
research interest is in the area of financial
accounting with a focus on corporate
disclosure, capital market prices, and
corporate governance. Her recent work
has examined the properties of analyst
and management earnings forecasts as
well as investors’ reaction to different kinds of corporate disclosures.
Brian Tayan is a member of the Corporate
Governance Research Initiative at the
Stanford Graduate School of Business.
He has written broadly on the subject of
corporate governance, including the
boards of directors, succession planning,
compensation, financial accounting, and
shareholder relations. He is co-author
with David Larcker of the books A Real
Look at Real World Corporate Governance
and Corporate Governance Matters.
Email: abeyer@stanford.edu
Email: btayan@stanford.edu
David F. Larcker
Acknowledgements
David F. Larcker is James Irvin Miller
Professor of Accounting at the Graduate
School of Business of Stanford University;
director of the Corporate Governance
Research Initiative; and senior faculty at
the Arthur and Toni Rembe Rock Center
for Corporate Governance. His research
focuses on executive compensation and
corporate governance. Professor Larcker
presently serves on the Board of Trustees
for Wells Fargo Advantage Funds. He is co-author of the books
A Real Look at Real World Corporate Governance and Corporate
Governance Matters.
The authors would like to thank Matt D. Brusch, Ariel A. Finno,
and Michelle E. Gutman for assistance in the preparation of this
study.
Email: dlarcker@stanford.edu
2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact Corporate Decision-Making 18
About NIRI and the Rock Center
About the National Investor Relations Institute
About The Rock Center for Corporate Governance
Founded in 1969, the National Investor Relations Institute (NIRI)
is the professional association of corporate officers and investor
relations consultants responsible for communication among
corporate management, shareholders, securities analysts and
other financial community constituents. The largest professional
investor relations association in the world, NIRI’s more than
3,300 members represent over 1,600 publicly held companies
and $9 trillion in stock market capitalization.
The Arthur and Toni Rembe Rock Center for Corporate
Governance is a joint initiative of Stanford Law School and the
Graduate School of Business at Stanford University. The Center
was created to advance the understanding and practice of
corporate governance in a cross-disciplinary environment where
leading academics, business leaders, policy makers, practitioners
and regulators can meet and work together.
www.rockcenter.law.stanford.edu
www.niri.org
Contact Information
For more information on this report, please contact:
Katie Pandes
Assistant Communications Director
Ariel A. Finno
Director-Research
Stanford Graduate School of Business
Knight Management Center
Stanford University
655 Knight Way
Stanford, CA 94305-7298
National Investor Relations Institute
225 Reinekers Lane
Alexandria, VA 22314
Phone: 703.562.7678
Email: afinno@niri.org
Phone: 650.724.9152
Email: kpandes@stanford.edu
© National Investor Relations Institute and Stanford University | 2014 Study on How Investment Horizon and Expectations of Shareholder Base Impact
Corporate Decision-Making