Annual reports - … who reads them? - includes related article

Communication World, Oct, 1994 by H.R. Hutchins

EXCEPT FOR U.K. STUDIES, LITTLE RESEARCH WAS FOUND ON THE IMPORTANCE OF ANNUALS TO INSTITUTIONAL INVESTORS OUTSIDE THE U.S.

A major frustration encountered during the research phase of this study was finding a surprising dearth of research or literature on the usefulness of the annual report to the institutional investor.

Much "how-to" information has been written by communication scholars and financial communication professionals on annual reports. Literature ranges from how to write a more "ethical" report to the intricacies of producing a video annual report. Some literature addressed the usefulness of the annual report to particular segments of the individual investor group. Yet, despite the importance of the institutional investor, there is a conspicuous lack of research on the usefulness of the annual to the institutional investor.

Equally surprising, from the handful of pertinent research pieces turned up, the key works were published in the United Kingdom. In the U.K.'s Accounting and Business Research Journal Autumn 1982 issue, for example, R.D. Hines suggested that the annual has little, if any, effect on the actual market value of a company's stock. The focus of Hines' investigation was an apparent anomaly between shareholder surveys and what he described as Efficient Markets Hypotheses (EMH). In simpler terms, Hines maintained that annual reports are issued too late to be of use to shareholders, particularly large institutionals; the information they contain has been disseminated and absorbed by investors before the annuals are published.

Another major U.K. financial journal, Accountancy specifically addressed the challenge of communicating with institutional investors in its May 1990 issue. Authors Alexander Prexis and Veerle Berbers reinforced the influence that key investor relations tools, such as the annual report, have on institutional investors. At the same time, however, they cautioned their corporate readers that analysts and institutional fund managers are able to make faster and more-informed decisions based on the real-time information gained from their computer screens.

A year later, Accountancy's August 1991 issue took and other look at the annual report and its informational value to shareholders, particularly institutionals. Authors Sid Gray, Clare Roberts and Paul Gordon argued that while some U.K. companies are now providing information on "corporate systems," a major failing of most reports is that they still give little or no quantified information about future prospects, a key information need of institutional investors.

H.R. Hutchins is secretary and education grants officer of the Shell Oil Company, Houston, Texas. He will lead a session on annual reports at IABC's 1995 international conference, June 11-14, in Toronto.