The Relationship Between Investor Relations Management And Financial Costs

Because of the existence of information asymmetry problem in the capital market, the listed companies will meet financial fraud or executives violate the interests of minority shareholders which bring to the companies a crisis of confidence.In order to repair the image in the eyes of investors of listed companies and attract more investors and advocates, companies began to attach importance to the relationship between the investors and management. On the other hand, regulators from all countries have adopted a series of measures such as mandatory disclosure to regulate the capital market, protect the interests of the shareholders. Investor relations management is a strategic administration behavior, it can maximize the enterprise value through magaging the enterprise’ information exchange and communication with the knowledge of financial, communication and marketing management.Investor Relations Management was initially originated in the 1940 s or 50 s in the United States. After several decades of development, now it has gradually formed a set of mature and complete system. As China’s capital market development late, the concept of investor relations management was introduced into our country until the early 21 st century. China securities regulatory commission in 2005 issued "the guidance on the relationship between listed companies and investors" which actively advocate and promote the work process of listed companies’ investor relations management, further promoting the development of China’s investor relations management.At present, the existing research on investor relations management abroad is relatively rich, but in our country, the research mainly focuses on the status quo of investor relations management, the influence factors of investor relations management and how to measure investor relations accurately. But there is less research on economic consequences, especially on the relationship between investor relations management and the enterprises’ financing cost. Financial cost has always been one of the most important problems that companies care. So this paper, based on the existing research, combined the results of top secretaries of directorate since 2005 to discuss the value of investor relations management from the view of the influence of investor relations management to enterprise financing costs.This paper studies the effect of investor relations management on the cost of equity financing and debt financing costs respectively using Chinese listed companies in Shenzhen stock market and Shanghai stock market as research sample. First, we use the residual income model to calculate the cost of equity financing in the various samples. Secondly, Investor relations management and financial cost are not a simple causality, good Investor relations management can help to decrise companies’ financial cost, but to the contrary, companies may dedicated to investor relations management activities because of high cost which leads to selection problem. So the two stage method is adopted to test the relationship between investor relations and the cost of equity financing and the cost of debt financing respectively. Then, we divide our sample into different groups by their property and the size of financing constraints.In this paper, the empirical results of the research show that the investor relations management and corporate debt financing and equity financing costs are significant negative correlation. After controlling the selection problem by using the two stage method, investor relations management and corporate financing costs still has significant negative correlationThis suggests that a high level of investor relations management has a positive effect to reduce the enterprise cost of financing.