2009 PROCEEDINGS - Public Relations Society of America

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