Understanding investor information requirements utilising web-log data

Abstract

Communications technology is advancing at a rapid rate, resulting in the continual decrease of information dissemination costs and an increase in the number of mediums available to corporates for stakeholder communication. This advancement in technology has resulted in increased consumption of investor relations information in a digital format and a general movement towards utilising the internet as a key communications medium for stakeholder reporting. The ability to understand stakeholders and their online information requirements is becoming more important in this rapidly changing environment. The purpose of this study is to understand the information requirements of investors when making investment decisions, with the key objectives being to firstly understand how investors engage with online integrated reports and secondly to understand the effect of online integrated reporting on the publishing companies share price. This study makes use of a web-log dataset that tracks online integrated report user behaviour, as this information is believed to be used in the investment decision making process. Previous studies have been conducted with the aim of understanding investor behaviour and their information requirements, however, it has proven difficult to execute due to a lack of effective research approaches and access to investor activity (Rowbottom, Allam, & Lymer, 2005). The opportunity to utilise online integrated reporting web-log data across a number of clients and sectors in South Africa results in a unique set of insights that are relevant to a number of stakeholders in South Africa. Due to the fact that access to such a data-set is typically difficult to acquire, this study presents the opportunity to truly build on the understanding of investor user behaviour in a South African setting. A web log data-set consisting of 9 Johannesburg Stock Exchange listed companies that operate in a number of industries in South Africa was utilised for the quantitative analysis. A Correspondence Analysis was utilised as an exploratory tool in order to investigate and better understand how users engage with the content of online Applied Research Project Ilan Fisher: 0401061R vi integrated reports. A Correlation Analysis was run with the aim of better understanding the relationship between the different sections of the reports in order to gain further insight and build on the learnings of Correspondence Analysis. In order to better understand the impact that online integrated reporting has on the publishing companies share price, an attempt using multiple linear regression has been made to quantify the impact that online integrated reporting has on a company’s share. The results of the study indicate that, whilst small, the integrated report does in fact have an impact on the company’s share price. More specifically the research showed that the only significant section that had an impact on the share price was divisional reviews and its associated content that relates to social, ethical and environmental issues. In terms of investor information requirements and behaviour, the research was able to generate insights that are different from studies that have previously been conducted. Whilst previous studies have focused on what information is important to investors, particularly with regards to financial vs. non-financial information requirements, this study took an approach that revealed that particular pieces of content are related with financial metrics where others are not. The analysis also highlights that specific content is important to users depending on the users’ industry. To the best of my knowledge, the use of such a unique data set and associated methodology has not been applied to the problem statement and has therefore resulted in a unique set of insights. Previous studies conducted on the topic of investor information requirements are inconclusive, the results produced by this study add to the growing body of knowledge and suggest that; social, ethical and environmental content is important to investors and that whilst small, online integrated reporting does in fact have an impact on the publishing company’s share price. Whilst the results that have been generated are insightful, there are a number of limitations that are associated with the study. There are 2 key limitations that are required to be considered; firstly, the research indicates that there are a number of factors that have an impact on share price variation, only some of which have been included and explored in the regression model. Causality of the variables that are investigated cannot be determined and are not explained by the coefficients of regression. The second limitation of the study that needs to be considered is the fact Applied Research Project Ilan Fisher: 0401061R vii that there is no required structure to which online integrated reports are required to adhere to. The analysis required the manual categorisation of the sections of the report into predefined categories that are typically incorporated into reports. The analysis is therefore limited to the categories that have been chosen as well as the accuracy of categorisation. In order to build on this study as well as the on related studies on the topic, it is suggested that focused research is carried out utilising access to the of the web-log data set. This focused research would utilise a forward-looking custom-built dataset in which data is collected with the specific aim of addressing hypotheses rather than utilising a historical secondary data set. Keywords: Online Integrated Reporting, Web-Log Data, Correspondence Analysis, Investor Relations, Online Reporting