The first web browser was launched in 1991 by Tim Berners-Lee, but it was with the launch of Mosaic in 1993 (which allowed the display of text and graphics on the same page), and the start of online shopping, with the launch of eBay and Amazon in 1994 and 1995, respectively, that web usage began to grow rapidly. Pages gradually became more interactive and allowed user-generated content and syndication (often called Web 2.0).
The Internet has had a substantial impact on both the practice of investing and the practice of investor relations (IR), due to its ability to give worldwide access to information within seconds. The Internet allows rapid communication at low cost, and so is inherently attractive as a communication tool. It also allows equality of access, a “level playing field” (what Bonson and Flores (2011) call “an unprecedented process of technological democratization”), and so can avoid the problem of “selective disclosure” which is inherent in meetings (even public meetings) and phone calls. Aspects of the Internet were rapidly adopted by companies for their IR programs (see Brennan and Kelly, 2000) Other benefits include the reduced executive time spent answering investor and analyst questions, the reduced costs of meetings and printed materials, and improved ability to communicate widely at short notice. The “broadcasting” function of the Internet was quickly utilized by corporations during the 1990s.1 The “two-way” communication potential of the Internet has seen much more limited use (Deller, Stubenrath, and Weber, 1999, Bollen, Hassink, and Bozic, 2006). While Fama’s “efficient market” (1965) is still far from being achieved (and seems unlikely ever to be achieved due to informational asymmetries and psychological factors), the Internet has certainly brought the markets closer to this ideal, both in speed and in availability of relevant information. The limitations of traditional financial information also became more apparent as investment horizons contracted and methods of valuing nonfinancial assets became more widespread. Other corporate functions such as HR and marketing began to measure their value and contributed to the view that periodic, historical, cost-based, financial statements are no longer sufficient for making capital market decisions (Elliot 1992).
While the usefulness and growing importance of interactive digital platforms have been widely acknowledged, the IR function seems unsure about how to grasp the potential. Releasing information via Twitter, Facebook, and similar channels must be done with caution to avoid violating financial markets regulations. Moreover, companies are vulnerable to negative publicity that can be quickly and widely disseminated over social media networks, even if the company in question is not an active participant in social media.
Gowthorpe (2004) provides a snap shot of use of the Internet to disclose financial information to investors. At the time Gowthorpe’s research was conducted (2001), although the Internet was well established, only about half of the companies analyzed had progressed to stage one, and there was very little evidence of video content. Gowthorpe (2004) also found that most companies did not consult with users on the information that they desired.
Additionally, investors and analysts may use their impressions of the quality of online disclosure and the responsiveness of the organization to requests for further information, to draw conclusions about the quality of corporate IT, financial reporting systems, and management in general; a practice defended by Bollen (2008).
The challenge for listed organizations is how to build effective (and compliant) relationships with key investors in an environment where “loyalty” is apparently ever decreasing (Falkow, 2010). In the face of reducing loyalty, companies must resist the temptation to reciprocate by reducing investment in the corporate side of the interface, and must strengthen their proposition in order to stand out from generic offerings. Leading corporations show that this can be done, and that improving the online offering is a core requirement if this goal is to be achieved.
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1 Early U.K. studies include Lymer and Tallberg (1997), Hussey et al. (1998), Craven and Marston (1999), Deller, Stubenrath, and Weber (1999).