2009 PROCEEDINGS - Public Relations Society of America
2009 PROCEEDINGS - Public Relations Society of America
2009 PROCEEDINGS - Public Relations Society of America
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The purpose <strong>of</strong> this study is to gain an understanding <strong>of</strong> how individual investors<br />
use and value information from public relations pr<strong>of</strong>essionals (i.e. directly from a<br />
company) vs. the news media and other sources. A study <strong>of</strong> investor relations with a<br />
focus on communication variables and individual investors as the population <strong>of</strong> interest<br />
would add considerably to the research on the subject. In particular, a study <strong>of</strong> the<br />
importance <strong>of</strong> a particular public’s (investors) preference for public relations information<br />
compared to media and word-<strong>of</strong>-mouth sources will add an empirical understanding <strong>of</strong><br />
the role <strong>of</strong> public relations content in aiding informed decision making in an investing<br />
context. It will also lend support to the increasingly important role <strong>of</strong> investor<br />
relations/public relations for publicly traded companies.<br />
Investor Behavior<br />
General characteristics <strong>of</strong> individual investors, particularly currently, are hard to<br />
obtain. As might be expected, whites and individuals with higher income are more likely<br />
to participate in company pension plans than other race/ethnic groups or persons <strong>of</strong> lower<br />
income (Brown, 2007). But this demographic information does not address stock<br />
purchases directly. However, one recent study <strong>of</strong> South African investors determined four<br />
changes in the general characteristics <strong>of</strong> investors over the past two decades: they are<br />
more concentrated in the middle age group; they hold fewer total securities in their<br />
portfolios; they tend to invest for the long term; and they use indexes to compare the<br />
performance <strong>of</strong> specific investments (Brijlal, 2007). While there may be differences<br />
between a South African and a U.S. context, the study is a clue into the characteristics <strong>of</strong><br />
current individual investors.<br />
One study used an investor relations context to test the situational theory <strong>of</strong><br />
publics—that active publics are more likely to actively process and remember<br />
information than are passive publics (Cameron, 1992). An experiment with stimulus<br />
materials relating to investing did confirm this notion, indicating that investors, who are<br />
by nature more active with regard to investment information, were more engaged with<br />
investment-related material. However, the subjects were undergraduate students, not<br />
actual investors.<br />
One study <strong>of</strong> actual investors found that individual investors tend to behave<br />
according to a rational choice model, in spite <strong>of</strong> the fact that economists have assumed<br />
individuals to be more susceptible to psychological biases than institutional investors<br />
(Kaniel et al., 2008). Specifically, individuals tended to buy stocks following periods <strong>of</strong><br />
price decline and sell following price increases, showing a calculated response to<br />
information in order to maximize return. The authors <strong>of</strong> this study surmise that individual<br />
investors, unlike institutions, are able to more quickly exploit private information about<br />
specific stocks. But they note it is unclear how individuals obtain such information.<br />
Another study showed similar patterns <strong>of</strong> buying and selling in response to price<br />
fluctuations, but shows that trading—in this case in index futures markets—can be<br />
sentiment driven (Kurov, 2008). The studies leave open the question <strong>of</strong> what types <strong>of</strong><br />
information individual investors seek and use when making stock investments.<br />
Individual investors in <strong>America</strong> as a group tend to prefer to educate themselves<br />
when making investments using a variety <strong>of</strong> information available to them (Mezick,<br />
2001). A more recent study confirmed this by showing that fewer than half (47.3%) <strong>of</strong><br />
respondents in a national household survey used the services <strong>of</strong> financial pr<strong>of</strong>essionals<br />
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