Promotional Press Releases Increase Investor Attention, Study Finds

For smaller, less visible companies, promotional press releases — firm-generated stories that contain less value-relevant content — appear to increase investor attention and lead to more efficient reactions to subsequent investor-focused disclosures, according to a new study by an accounting researcher at the University of Arkansas.

“We know that firms use press releases to both self-promote and communicate to investors,” said Caleb Rawson, assistant professor of accounting in the Sam M. Walton College of Business and coauthor of “Promotional Press Releases and Investor Processing Costs,” to be published in Management Science. “But is this effective? Do firms that self-promote to non-investor stakeholders, such as employees and customers, also get more attention from investors? We found they do, that this practice is effective, especially for smaller, less visible firms. They were indeed successful at attracting investor attention with the strategic use of promotional press releases.”

The average publicly traded firm issues 28 press releases per year. The majority of these target investors and typically contain material information, such as the announcement of a contract, turnover of an executive or financial results, all of which are relevant for predicting future performance. Firms contract with presswire services to disseminate this information to the media and other channels, reaching a broad audience of current and potential investors.

Firms also use this same communication method to issue a very different type of disclosure – promotional press releases. Promotional press releases focus on awards, brand promotions, corporate giving and other events intended to convey a positive image of the firm. On average, these disclosures are significantly less value-relevant than press releases aimed toward investors. They also contain more positive and emotional language and less specific and financially oriented language.

Rawson and his colleagues — Brady Twedt at Texas A&M University and Jessica Watkins at University of Notre Dame – looked at more than 1 million press releases issued by 5,000 publicly traded firms between 2006 and 2019. They found that greater use of promotional press releases decreased processing costs for subsequent investor-focused press releases. This resulted in heightened investor attention and more efficient pricing. However, for more visible firms that have more information available to investors, frequent use of promotional press releases did not appear to impact pricing efficiency.

“Our evidence highlights the unique attributes of promotional press releases relative to other forms of corporate communication,” Rawson said. “It suggests that investors should consider the intended purpose of the press release and how this communication process might affect market outcomes.”