In this study, we test formally the market value of investor relations (IR) activity employing the annual Investor Relations Magazine Best Overall IR Awards data from 2000 to 2002 to proxy for the quality of firm investor relations. We find firms perceived by survey respondents to have effective IR strategies have significantly higher market value, and, also, earn superior abnormal returns, both before and after the award nominations. We also find that, not surprisingly, higher analyst following is associated with more nominations, suggesting analysts tend to favor the stocks they follow, although being nominated for best overall IR is also consistent with a significant increase in analyst following in the following year. Finally, in line with effective IR leading to lower information risk, liquidity of nominated firms, measured by stock turnover, increases in the year subsequent to the award nominations. Overall, our evidence is consistent with good IR successfully reducing the risk to investors associated with high information asymmetry, as predicted by information risk and agency theories
