For more information:
Alan Ashiki
Broadgate Consultants, LLC
212-232-2222
BAD NEWS FROM THE BUY-SIDE: WHEN A
COMPANY IS IN CRISIS,
MEDIA AND SELL-SIDE INFLUENCES WANE Despite Hype, Blogs' Time has Not Yet Come
NEW YORK: In the immediate wake of a company’s “bad
news” announcement, which can range from an earnings shortfall to the disclosure
of accounting issues or a product recall, the media and sell-side analysts are
not the primary influencers of institutional investors’ trading decisions, but
rather the company itself, according to a recent survey by Broadgate
Consultants. This is a key finding of a survey undertaken in April of leading
portfolio managers and buy-side analysts.
Not one of the 45 survey respondents, representing a range of institutional
investors including mutual funds, insurance companies and investment advisors,
chose the media or once-lionized brokerage firm analysts as a “very influential”
source of information when making trading decisions after a company’s adverse
news announcement.
Instead, the most-often cited “very influential” information sources were:
company contacts (64%); a company’s competitors (24%); and the decision-maker’s
network of other buy-side professionals (16%). Surprisingly, an overwhelming 78%
of survey respondents said that blogs and their close ancestor, chat rooms, were
“not at all influential” – despite much recent reporting about their rising
influence on business.
When asked to rate specific media outlets, however, those cited by respondents
as either “very” or “somewhat” influential were: industry trade publications
(69%); newswire services (64%); daily newspapers (47%); and broadcast financial
news (39%). Trade publications are noted for their in-depth industry knowledge
and newswires for the immediacy of their reporting.
Investors were also critical of media coverage following companies’ adverse news
announcements. Not surprising in typically fluid situations such as a crisis,
factual inaccuracy was the biggest problem, 42% of investors said, while 31%
said that coverage was accurate but stated the obvious. A meaningful number of
respondents, about 18%, said that coverage seemed to have a negative bias,
possibly reflecting investor disappointment in the wake of a “bad news”
announcement.
When a crisis hits, investors said that the most effective measures a company
can take to enhance credibility and minimize negative stock price impact were:
quickly disclosing and not ‘drip-feeding’ bad news (26%), often difficult when
the full dimensions of a problem are not yet understood; clearly articulating a
strategy to avoid a recurrence (19%); and meeting face-to-face with investors
(18%). Management seemed to get the benefit of the doubt, however, as only 9% of
respondents felt that a leadership change was an effective measure.
The most frequently-cited reasons among survey respondents for a company’s lack
of transparency and poor handling of bad news were testaments to human frailty:
a natural reluctance to admit that they had made a mistake (22%); fear of a
sliding stock price (20%); and a lack of complete information (16%).
About Broadgate Consultants, LLC Established in 1987, Broadgate Consultants, LLC provides strategic corporate
and capital markets communications advisory and implementation services to
public companies and private equity firms and their portfolio companies.
Broadgate is an operating unit of D.F. King & Co. Inc. The firm is also a
partner in Public Relations Organization International (PROI), the world's
oldest international partnership of independent public relations and marketing
firms. More information about Broadgate can be found on the Internet at
www.broadgate.com
