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Malaysian companies use of the internet for investor relations


Fathilatul Zakimi Abdul Hamid
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Malaysian companies use of the internet for
investor relations
Fathilatul Zakimi Abdul Hamid

Fathilatul Zakimi Abdul Hamid is Abstract


a Lecturer at the Faculty of Purpose This study focuses on Malaysian companies because of the confidence shown by the
international business community in what is considered to be the best country for corporate governance
Accountancy, Universiti Utara
practice. Additionally, the Malaysian stock market is considered to be the largest stock market in terms of
Malaysia, Sintok, Malaysia.
market capitalization in Asia. The primary objective of this study is to investigate the utilization of the internet
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by Malaysian-listed companies for investor information or communication. It also examines the content of
such investor relations (IR) information compared with similar web sites from other parts of the world.
Design/methodology/approach The sample for the study consists of 100 stock market index-linked
firms listed on the Kuala Lumpur Stock Exchange.
Findings Using a disclosure index for measuring investor information disclosure published in the
companies web sites, this study revealed that only 70 firms provided investor-related materials on their
web sites. The highest-ranking investor-relations item was the background of the companies.
Originality/value The results confirm that a gap exists between developed countries and developing
countries with respect to the utilization of the internet for investor-relations purposes. This study also
provides evidence that governing bodies in East Asia such as the Securities Commission, the Stock
Exchange, and the Accounting Standard Board should encourage (and, if necessary, enforce) the
publication of IR information on company web sites.
Keywords Investors, Internet, Reports, Disclosure, Corporate governance, Malaysia
Paper type Research paper

Introduction
The Investor Relations Society, a British professional body for investor relations practitioners
defined investor relations (IR) the management of the relationship between a company with
publicly traded securities and the holders or potential holders of such securities. Marston
(1996) noted that the purpose of investor relations is to provide information to the financial
community and public investors such that they are able to evaluate a company. Ryder and
Regester (1989) proposed that IR has strategic importance in creating a linkage between
companies and investors. They have suggested that IR activities must focus on three
principles. The first is to achieve and maintain the highest-possible share price. The second is
to create investor confidence such that the cost of financing is decreased. The third is to protect
the needs of major shareholders and to attract institutional and foreign shareholding investment.
Lev (1992) recommended that ongoing information to shareholders on the companys
activities minimizes uncertainty among investors, thus minimizing negative impacts on share
prices. IR can be therefore be seen as a key influence in restoring investors confidence
(Gruner, 2002), especially in an uncertain economic environment. Such uncertainty can be
The author acknowledges financial understood in terms of internal and external factors. Internal factors refer to perceptions of a
support from Universiti Utara
Malaysia. The author thanks the companys performance being below public expectations (negative news or rumor).
anonymous reviewer and the editor of External factors refer to unpredictable economic conditions that are beyond the firms
Corporate Governance: The
International Journal of Business in
control. These internal and external factors require companies to keep investors and the
Society. general public informed of their strategies to overcome such adverse situations. IR can thus

DOI 10.1108/14720700510583421 VOL. 5 NO. 1 2005, pp. 5-14, Emerald Group Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j PAGE 5
be understood as the dissemination of accurate information with a view to stabilizing share
prices and enhancing investors confidence. Thompson (2002) noted that IR has an
important role in minimizing investors risk by providing clear and understandable
information with the aim of full and fair disclosure. IR is thus important in increasing
shareholders value. Recent corporate collapses in the USA have highlighted the
inadequacy of corporate disclosure policies, governance procedures, and investor
relations, and indicate that the current disclosure and governance policies need serious
revision if investors confidence is to be rebuilt.
IR is an important part of corporate governance. The Securities Commission (2000, p. 10)
describe corporate governance as the process and structure used to direct and manage
the business and affairs of the company with a view to enhancing business prosperity and
corporate accountability, with the ultimate objective of realizing long-term shareholder value
while taking account of the interest of other stakeholders. Furthermore, the Malaysian
Reports on Corporate Governance (Securities Commission, 2000, pp. 96-7) state that a
principal responsibility of a company board is to develop and implement an IR-programmed
shareholder communication policy. This principle has been adopted for companies listed on
the Kuala Lumpur Stock Exchange (KLSE). However, no detailed authorized statement of IR
information requirements has been issued. Despite this lack of detailed requirements, the
increased awareness of the need for good corporate governance has stimulated interest in
IR, and some companies have set up specific IR departments.
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Methods of IR
IR communication can be formal or informal. Formal communication includes annual reports,
interim reports, and shareholder meetings (annual and extraordinary) (Brennan and Kelly,
2000). According to Marston (1996) and Brennan and Kelly (2000), informal IR activities can
be classified as private or public. Private activities include mailing information to analysts
and fund managers, answering queries, providing feedback on analysts reports, and
private company meetings. Public disclosure activity mainly relates to printing and issuing
information by way of press release.
The emergence of internet technology has forced companies to provide new methods of IR
communication. The internet allows companies to provide global IR communication without
time limitation. An IR web site can also reduce costs of printing and staffing. Shareholders
can choose to receive financial data online, rather than through postal mail. IR managers can
respond to requests from analysts and fund managers with up-to-date information. Taken
together, these factors mean that IR information on the internet provides benefits in
cost-cutting, distribution, frequency, and speed.

Objective of the study


The primary objective of the present study was to investigate whether IR information is
present on the web sites of publicly listed companies in Malaysia. The secondary objective
was to examine the content of such IR information and to compare Malaysian web site IR
information with similar web site information from other parts of the world. Most of the existing
studies of this type have focused on the USA and Europe (Deller et al., 1999; Hedlin, 1999;
Marston and Straker 2001). A survey of the Malaysian reporting environment was considered
to be an important addition to such studies, thus providing greater understanding of
corporate governance in an Asian country. A survey of the perceptions of expatriate
business executives in key Asian economies conducted by Political and Economic Risk
Consultancy, published in June 2001, ranked Malaysia as the best country in corporate
governance (Transparency International, 2002, p. 85). In addition, the KLSE is considered to
be the largest stock market in terms of market capitalization in Asian. At the end of 2002, total
market capitalization was RM84 billion (Lee, 2003) and the Malaysian government was
actively promoting foreign investment in the Malaysian stock market. Lastly, as suggested by
Marston and Straker (2001), there was little academic research in IR and therefore this study
try to fill the gap in literature relating IR practice across countries.

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PAGE 6 CORPORATE GOVERNANCE VOL. 5 NO. 1 2005
The next section of this paper discusses earlier research in this area and the related
theoretical postulates. The following section presents the methodology of this study. Then
follows the results of the study, and discussion of those results. The final section presents the
conclusions and limitations of the study.

Literature review
There is no single theory that explains all aspects of IR as practiced by various companies.
Deller et al. (1999) saw IR in terms of: agency theory; and efficient market hypotheses.
Agency theory, introduced by Coase (1937), and later expanded by Jensen and Meckling
(1976), posited that the role of accounting information was to supervise managers behavior to
reduce agency cost. Watts and Zimmerman (1978) argued that companies would increase
voluntary disclosure to avoid regulatory pressure from government and stakeholders. Lev
(1992) pointed out that, without active corporate disclosure, truth never prevails:
Economic theory has recognized that without active disclosure the truth never comes out a
permanent information gap generally exists between insiders and outsiders.

Under the theory of efficient market hypotheses (EMH), a corporation can influence the
market by presenting new information to its participants (Deller et al., 1999).
Ashbaugh et al. (1999) defined internet financial reporting as the distribution of corporate
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financial information using internet technology, such as the World Wide Web. Many studies
have assessed the use of the internet for financial reporting, but most of these have been
descriptive in nature and have focused only on financial reporting (Xiao et al., 2002). Lymer
(1997) studied the top 50 UK companies listed on the stock exchange and showed that 92
percent of the companies had web sites, although only 24 percent of these web sites
published full financial reports. Noor and Mahamad (2000) examined 218 web sites of
Malaysian companies and found that only 11.5 percent disclosed their full annual reports.
However, their sample was limited to Malaysian companies that had established links with
the KLSE web site. In a recent article, Marston (2003) extended an earlier study (Marston
and Leow, 1998) by examining the web sites of the top 99 Japanese companies. He found
that the majority had an English language web site with full annual reports available.
Given the increasing use of the internet for worldwide communication, the role of this medium
has extended beyond financial reporting to become an instrument for investor-related
communication (Gruner, 2002). As such, according to Deller et al. (1999), the internet will
reduce the information advantage previously enjoyed by institutional investors and information
intermediaries. Deller et al. (1999) conducted a survey of the communication of IR information
via the internet by 100 index-linked companies in each of the USA, UK, and Germany. The
results showed that 91 percent of US firms had utilized the internet as a communication
medium for IR, as compared with 72 percent of UK companies, and 71 percent of German
companies. The researchers also noted that the web sites of US firms offered more features
than the web sites of the other two countries. These features included email addresses for IR,
mailing lists, and frequently asked questions (FAQs) related to IR.
Hedlin (1999) conducted a study of Swedish firms. These were divided into three categories:
the most active stock; small and medium companies; and new high-technology companies.
However, Hedlin (1999) did not quantify the IR information disclosed, and the IR information
was variously reported; for example, 83 percent of the firms had a financial report on the
Web and 12 percent had a hyperlink for the interpretation of financial reports. Brennan and
Kelly (2000) conducted a similar study of 99 Irish listed companies. This study revealed that
only 67 percent of the sample had a web site and that only 84 percent of these web sites
presented IR information.
Ettredge et al. (2002) extended earlier work by Ashbaugh et al. (1999) on the dissemination
of information for investors on American corporate web sites. They analyzed 193 firms web
sites, which provided two types of information: mandatory information required by US
securities authorities; and voluntary information for investors. The results suggested that the
mandatory information was significantly associated with size, whereas voluntary information

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VOL. 5 NO. 1 2005 CORPORATE GOVERNANCE PAGE 7
was associated with size, information asymmetry, demand for external capital, and a firms
traditional disclosure reputation.
From the above discussion, it is apparent that most of the earlier studies have concentrated
on the presence or absence of IR practices in Western countries. In contrast, the present
study extends the literature by examining the use of the internet for IR purposes by
Malaysian listed companies.

Methodology

Sample
The sample for this study consisted of 100 Malaysian index-linked counters (CIs) listed on the
Kuala Lumpur Stock Exchange (KLSE). The CIs are 100 stocks listed on the main board of the
exchange. To be considered as CIs, a company must be evaluated by the index
subcommittee of the stock exchange. Among other factors, selection criteria include market
capitalization and trading volume. These companies were chosen for the present study
because it was expected that they would actively conduct IR activities and be closely
scrutinized by investors. Such a selection was also consistent with Deller et al. (1999), whose
sample consisted of 100 stockmarket index-linked companies in the USA, UK, and Germany.
The first step was to identify the companies web sites. The KLSE web site (www.klse.com.my)
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was used to locate the homepage of the respective firms. If there was no such link available,
other popular search tools were used (including Yahoo, Alta Vista, Dogpile, Google, and Cari).
This study employed content analysis to measure the incidence of IR disclosure on the web.
Several authors (Krippendorff, 1980; Weber, 1988; Neuendorf, 2002) have proposed a
formal definition of content analysis. Krippendorff (1980) defined it as a research technique
for making valid inference from data according to their content whereas Webers (1988)
definition stated that content analysis is a method of codifying text (or content) of piece
writing into various groups (or categories) depending on selection criteria.
Krippendorff (1980) and Neuendorf (2002) have provided a staged process for any content
analysis. The first stage is deciding the document to analyze. The present research
monitored web sites for three month. Deller et al. (1999) used a one-month study period
(because their research was a comparison of IR information in three countries) and Brennan
and Kelly (2000) took a year, as discussed in literature review above. However, there is no
theoretical basis for deciding the period to monitor IR on a web site.
The second stage in content analysis is to determine the means of measuring IR. A review of
the literature suggests that the earlier measurement of IR information has been based on the
incidence of IR information (Deller et al. 1999; Hedlin, 1999; Brennan and Kelly, 2000), and
has been rather subjective. To measure the disclosure level quantitatively in the present
study, a disclosure index was developed. A dichotomous procedure developed by Cerf
(1961) was used to measure the disclosure score. A score of one was given if a given item
was disclosed and a score of zero if it was not disclosed. In this study, all IR items noted on
the web sites were considered equally important. The selection of items used in this research
was developed from prior research (see below).
The third stage in content analysis is to develop a checklist instrument. For this study the
checklist instrument categorized IR into six types: background of companies and financial
data; share price and shareholder data; ratio analysis; press release and presentations;
frequently asked questions; and IR contact details and online investor service. The
definitions of items in the checklist were derived from earlier works (Deller et al., 1999;
Hedlin, 1999; Brennan and Kelly 2000) and other major characteristics as discussed in the
literature review (above). Details are provided in the Appendix.
Inter-coder reliability is the main concern of content analysis study. To maximize inter-coder
reliability some precautionary measures were taken to ensure the reliability of the
measurement. First, both present authors (acting as coders) discussed the existing literature
relating to IR with the aim of enhancing their understanding of categories of material.

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PAGE 8 CORPORATE GOVERNANCE VOL. 5 NO. 1 2005
Secondly, both authors reviewed a sample of IR printed Web documents independently and
proceeded with the coding process using the checklist instrument. The coded data were
then compared for discrepancies. If any discrepancies existed, the document was
re-analyzed and differences resolved. Following this sample procedure, both authors
analyzed the remaining IR Web documents.

Result and discussion


The findings with respect to the existence of a company web site and the presence of IR
information on that web site are presented in Tables I and II.
Table I shows that 74 companies (74 percent) had web sites. Noor and Mahamad (2000)
found that 200 of Malaysian publicly listed companies (92 percent) had web sites. The
difference in proportion might be due to different methodology. The present study was
based on index-linked companies, and was not restricted to companies that had a KLSE
web site link (as was the case with Noor and Mahamad, 2000).
With respect to the existence of IR information on company web sites, the sample was
reduced to 70 because four sites did not contain any IR information at the time of this study.
Two of these companies were from the finance sector (which used their web sites for
marketing their services and products) and the other two were media-related companies
(which provided daily news to readers). As shown in Table II, 95 percent of the remaining
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companies had IR information on their web sites. This result can be compared with other
countries Ireland 84 percent (Brennan and Kelly, 2000), USA 91 percent (Deller et al.,
1999), UK 72 percent (Deller et al., 1999), and Germany 71 percent (Deller et al., 1999).
Table II also shows that 23 companies (33 percent) had a specific section on IR information.
These IR-specific sections contained information on company background and key
management, financial reporting, share price and shareholder data, press releases, awards
and achievements, and IR contact via email. These companies may concern on the
importance of IR communication via web sites for their investors and to help them to find
information in efficient way.
Table III shows the number of web sites that featured background information on the
companies. It was found that 67 (95 percent) of the web sites contained information on
company background. The highest-ranking item in this section was company background
that is, a profile of the company (including date incorporated, location of business, company
activities, mission, and vision). Information on directors by 16 (23 percent) sites ranked
second. An overview of the industry was on 11 web sites (16 percent) including
information on current issues relating to the particular industry, market information on growth,
and future challenges (such as the ASEAN free trade area, globalization, and technological

Table I Internet usage by Malaysian publicly listed companies


Items Number Percentage

Web site 74 74
No web site 26 26
Sample 100 100

Table II Existence of IR information on web sites


Items Number Percentage

Investor-related materials 70 95
No investor-related materials 4 5
Number of web sites 74 100
Web site with specific section on investor
relations 23 33

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VOL. 5 NO. 1 2005 CORPORATE GOVERNANCE PAGE 9
Table III Background data
Items Number Percentage

Web site with investor-related materials 70 100


Investor-related materials (at least one piece of
information) 67 95
Company background 65 93
Director biographies 16 23
Number of employees 11 16
Industry overview 11 16

advancement). The last item was company employees including number of employees,
human-resource development programs, and employee values (such as integrity,
professionalism, and entrepreneurship). Such background information is important in
building investors confidence because it indicates the strength of a company, its values and
beliefs, and the strategic direction in which it intends to move.
Table IV refers to the financial information presented on company web sites. The most
commonly found data were the full current annual reports, which was available at 33 sites (47
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percent). Historical annual reports (in full or summarized versions) were available at 26 sites
(37 percent). In contrast to the present results, Noor and Mahamads (2000) study of internet
financial reporting by Malaysian-listed companies showed that only 25 (11.5 percent) sites
disclosed full annual reports. It is possible that the increased use of portable document
format (pdf) files since 2000 has facilitated the availability of such reports. The least likely
financial information to feature on Malaysian publicly listed company web sites in the present
study were preliminary results which were published on only three (4 percent) sites.
Table V reflects the availability of share price and shareholder data on company web sites.
The results show that 28 (40 percent) sites contained at least some information on share
price and shareholder data. The most common information was the number of shares issued
with 16 (23 percent) sites having such information. The least disclosed information was on
current share prices which appeared on only eight (11 percent) sites. The low incidence
might be due to companies assuming that this information is commonly available and free of
charge at other third-party web sites. With regard to the details of large shareholders, the
web sites presented information only on names and percentages of the largest shareholders
for example the top ten shareholders by share holdings and analysis of shareholdings.
Table VI reflects information on the financial ratio of the companies (for use by investors in
analyzing financial performance of the companies). The most disclosed ratio was earnings
per share (EPS), which was available at 22 (31 percent) sites. The net tangible asset (NTA)

Table IV Financial information


Items Number Percentage

Web site with investor-related materials 70 100


Investor-related materials (at least one item) 49 70
Current annual report
Full 33 47
Summary 15 21
Historical annual report
Full 26 37
Summary 26 37
Preliminary result 3 4
Interim result
Current 20 29
Historical 21 30

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PAGE 10 CORPORATE GOVERNANCE VOL. 5 NO. 1 2005
Table V Share price and shareholder data
Items Number Percentage

Web site with investor-related materials 70 100


Investor-related materials (at least one item) 28 40
Share price
Current 8 11
Historical 10 14
No. of share issue 16 23
Detail large shareholder 15 21
Number of shareholders 11 16
Dividend
Current 11 16
Historical 11 16

ratio was ranked second, appearing on nine (13 percent) sites. The lowest-ranked financial
ratio was price earnings (PE) ratio, which was reported at only two (3 percent) sites.

Table VII looks at the number of press releases and frequently asked questions (FAQs). The
press release information shows that 35 (50 percent) sites included historical information
and 32 (46 percent) included current press releases. For comparison and verification of the
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actual press releases, the author checked the information with the KLSE web site
(www.klse.com.my/listing/Ica.htm), which provides an update of all types of company
announcements. The content of press releases included information on financial results
(quarterly, preliminary, and annual report), meetings (extraordinary and annual general
meeting), changes in the boardroom, and changes in share holdings (disposal and
acquisition).
Table VII also shows that the four (6 percent) sites featured a page on FAQs. This included
information on business involvement, types of securities issue, financial (year-end)
information, and dividend distribution.
Table VIII shows the sites that provided contact details, third-party web site links, and other
IR information. Overall, nine (13 percent) sites provided email addresses for contact, but

Table VI Ratio analysis


Items Number Percentage

Web site with investor-related materials 70 100


Investor-related materials (at least one item) 27 39
P/E ratio 2 3
EPS 22 31
ROA 3 4
ROE 4 6
Gearing 5 7
NTA 9 13
Return on shareholder funds 3 4

Table VII Press release and frequently asked questions


Items Number Percentage

Web site with investor-related materials 70 100


Press release
Current 32 46
Historical 35 50
Frequently asked question 4 6

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VOL. 5 NO. 1 2005 CORPORATE GOVERNANCE PAGE 11
Table VIII Contact details, third-party web site, and other IR information
Items Number Percentage

Web site with investor-related materials 70 100


Contact details
Name and address 6 9
E-mail 9 13
Investor relation link to third-party web site 7 10
Others investor-related information 6 9

only six (9 percent) sites featured names and addresses for investor enquiries. The present
authors examined the functionality of this facility for IR purposes by sending an email
requesting a company annual report. All sites responded within a day; indeed, British
American Tobacco responded in 30 minutes.
Table VIII also shows that seven companies (10 percent) provided links to third-party web
sites for IR information. Only one company, British American Tobacco, provided a link to its
parent company overseas.
Finally, 6 (9 percent) sites provided IR information not anticipated by the present authors.
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This included email alerts for IR information, IR policies, and subsequent meetings.

Conclusions and recommendation


Although research in this area in developing countries is limited, the findings of the present
study suggest that, compared with companies in Europe and the USA, Malaysian
companies are not utilizing the full potential of the internet for IR purposes (Brennan and
Kelly, 2000; Deller et al., 1999; Hedlin, 1999). Furthermore, Malaysian companies rely on
traditional IR communications with institutional investors and funds managers and this
group of investors is usually already well informed about how these firms operate (Brennan
and Kelly, 2000). Malaysian companies are thus not utilizing the full potential of the internet
by reaching out to foreign and public investors.
With regard to types of IR information provided, the top five items were the companys
background (93 percent), historical press releases (50 percent), current annual reports (47
percent), current press releases (45 percent), and EPS (31 percent). The high ranking
accorded to company background might be due to a belief that investor confidence can be
created on the basis of a perception of a company being strong and having definite strategic
directions (as expressed in mission statements and vision statements).
Like all studies, this study has its limitation. First, the sample of the study was restricted to
index-linked companies. Information on IR Web reporting by other listed companies would
also be interesting. A larger sample size would facilitate generalization from the results.
Secondly, the study focused on descriptive information. The study did not investigate
motivational factors that influence the disclosure of IR information by companies. Factors
such as company size could be examined by investigating possible association with agency
theory or related corporate governance variables. Thirdly, as noted by Brennan and Kelly
(2000), in view of the dynamic nature of the internet the results of the present study represent
only a snapshot of Malaysian companies using the internet for IR activities. Web sites are
constantly being created, and their information is being updated frequently. Finally, this
study did not investigate the application of corporate reporting information technology
such as XBRL (eXtensible Business Reporting Language).
The results suggest that the governing bodies in Malaysia such as the Securities
Commission, the Kuala Lumpur Stock Exchange, and the Malaysian Accounting Standard
Board should encourage (and, if necessary, enforce) the publication of IR information on
company web sites. This could be accomplished by issuing guidelines and/or best
practices on disclosure of IR information on web sites. Governing bodies must encourage a

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PAGE 12 CORPORATE GOVERNANCE VOL. 5 NO. 1 2005
change from the traditional methods of providing IR information to the new forms of
communication technology. In particular, the internet can play a primary role as a channel of
communication to investors in providing widespread information on a timely basis. Skinner
(2003) suggested that the combination of advanced communication technology, regulatory
pressures, and market pressure will force companies to disclose more information to capital
market participants. Corporate disclosure is becoming more urgent and open. Furthermore,
posting complete IR information on a web site is an important way of showing that a firm is
responsive to investor concerns and to rebuild confidence in the capital markets.
In addition, companies and governing bodies in Malaysia could set up a specific
professional body for IR as has been done in the USA in the form of the National Investor
Relations Institute (www.niri.com) and in the UK in the form of the Investor Relations Society
(www.ir-soc.org.uk). Such bodies can offer expertise, guidelines on best practice, and views
on the latest issues.

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VOL. 5 NO. 1 2005 CORPORATE GOVERNANCE PAGE 13
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Further reading
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FASB (2000), IR web site get guidance from FASB, Investor Relations Business, March 6, pp. 14-15.
Harper, H. (2002), Credibility gap, Strategic Investor Relations, Vol. 2 No. 3, pp. 19-23.
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Advertising Association), Eastbourne.

Appendix. Individual theme


1. Background of companies and financial data. This will include company background,
industry overview and number of employees. For the financial data, it will look into
annual report (summary or full statement) and interim results.
2. Share price and shareholder data. Reference is made to the current share price, market
capitalization, numbers of shares issue, and detail of large shareholder, historical share
prices, previous year earnings and dividends.
3. Ratio analysis. Looks on the performance ratio used to analyse companies. This will
include price earnings ratio, earnings per share, return on assets, and return on
earnings and gearing ratio.
4. Press release and presentations. Analysis on current and prior press release relating to
IR.
5. Frequently asked questions. Only look into the aspect of IR.
6. IR contact details and on-line investor service. This will include online service for
company like contact number or e-mail address for IR department or responsible
companies personnel for IR informations. (Deller et al., 1999; Hedlin, 1999; Brennan
and Kelly, 2000).

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PAGE 14 CORPORATE GOVERNANCE VOL. 5 NO. 1 2005
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