Press releases are a key communication tool for companies, but not all press releases are created equal. While firms often issue investor-focused releases with financial updates, they also regularly distribute promotional press releases aimed at improving public perception. A recent study published in Management Science by Brady Twedt, professor and Arthur Andersen Chair in Accounting at Texas A&M University’s Mays Business School, along with co-authors Caleb Rawson (University of Arkansas) and Jessica C. Watkins (University of Notre Dame), investigates how these promotional disclosures affect investor behavior, focusing on their impact on attention and market efficiency. Twedt and his colleagues find that while promotional press releases are generally less relevant to immediate financial performance, they play an important role in increasing investor attention and improving the pricing efficiency of future investor-focused disclosures, particularly for less visible firms. This evidence suggests that promotional press releases have a significant, though indirect, influence on market dynamics. The research provides valuable insights for both corporate communication strategies and investor behavior analysis, highlighting the nuanced role of different types of press releases in shaping market outcomes.

Decoding the Impact of Corporate Self-Promotion

Given the current corporate environment where investors are bombarded with information, processing costs — essentially the effort and time required to acquire and interpret a firm’s disclosures — are a significant factor in how investors react to news. Promotional press releases, while not directly linked to financial performance, can help reduce these costs by putting the firm on investors’ radar.

By enhancing visibility and drawing media attention, promotional press releases can prime the market for more informed and efficient reactions to subsequent financial disclosures. This study underscores the importance of understanding how these communications fit into a firm’s overall disclosure strategy.

The Significance of Non-Financial Disclosures

Understanding the role of promotional press releases is crucial for:

• Optimizing corporate communication strategies
• Enhancing market efficiency and investor awareness
• Bridging the gap between less visible firms and their potential investors

As companies navigate an increasingly competitive information landscape, these findings offer valuable guidance for crafting effective disclosure strategies.

Key Insights: The Unexpected Benefits of Self-Promotion

The researchers uncovered several intriguing findings:

1. Increased Investor Engagement: Firms with a higher frequency of promotional press releases see a dramatic increase in EDGAR downloads for subsequent investor-focused disclosures.
2. Enhanced Market Efficiency: The pricing of investor-focused disclosures becomes more efficient following periods of increased promotional activity, particularly for less visible firms.
3. Media Amplification: One channel through which the effect of promotional press releases appears to operate is media attention.
4. Visibility Matters: While less visible firms benefit significantly from promotional releases, highly visible companies see minimal impact on their market efficiency.

These findings challenge the conventional view that promotional press releases are of little value to investors, revealing their potential to shape market dynamics in subtle yet important ways.

Methodology: A Data-Driven Approach to Corporate Communication

To explore these dynamics, the researchers analyzed a massive dataset of over 1.1 million press releases from more than 5,000 publicly traded companies between 2006 and 2019. Using Latent Dirichlet Allocation (LDA), they classified press releases into promotional and investor-focused categories. Metrics such as abnormal returns, trading volume, EDGAR downloads, and Google search volume were used to assess investor attention and processing costs. The study employed regression models to determine how promotional press releases influenced market efficiency, with particular attention to the role of firm visibility and media coverage.

This comprehensive approach allows for a nuanced examination of how various types of corporate communications influence investor behavior and market outcomes.

Practical Implications: Rethinking Communication Strategies

These findings offer valuable insights for corporate leaders and investors, alike:

1. Strategic Use of Promotion: Companies, especially those with lower visibility, may be able to leverage promotional press releases to enhance investor engagement with subsequent financial disclosures.
2. Balancing Act: Firms should aim for an optimal mix of promotional and investor-focused communications to maximize market efficiency.
3. Media Engagement: Cultivating media relationships can amplify the positive effects of promotional activities, particularly for less visible firms.
4. Investor Awareness: Savvy investors should recognize that promotional releases, while not directly financial in nature, can signal increased transparency and corporate engagement.

The Road Ahead: Navigating the Evolving Landscape of Corporate Disclosure

As the boundaries between promotional and financial communications continue to blur, several questions emerge:

• How might the rise of social media and alternative information channels affect the impact of traditional press releases?
• Can excessive use of promotional releases lead to diminishing returns or skepticism among investors?
• How should regulatory bodies view the role of promotional communications in maintaining fair and efficient markets?

Conclusion: Redefining the Value of Corporate Communication

This study challenges us to reconsider the role of promotional press releases in the corporate communication ecosystem. Far from being mere fluff, these releases can serve as valuable tools for enhancing market efficiency and investor engagement, particularly for less visible firms.

For corporate communicators, a well-crafted promotional strategy can pave the way for more effective financial disclosures. For investors, it’s a reminder that valuable signals can come from unexpected sources.

In an era where information overload is the norm, this research underscores the importance of a holistic approach to corporate communication. It reminds us that in the complex dance between companies and markets, even seemingly non-financial disclosures can play a crucial role in fostering transparency, efficiency, and informed decision-making.