There’s no doubt, and there’s ample academic literature to support the notion, that a regular dialogue with investee companies is a good thing for analysts and managers. Analysts make better forecasts and managers make smarter investment decisions as a result.
Through COVID site visits were difficult and we had to rely on conference calls to stay in touch, but most would agree something was lost in the process. However, despite a general feeling of dissatisfaction with the process were there tangible losses from not being able to schlep to one’s favorite coal mines, say, in Shaanxi?
The paper this week from Sean Cao (et al.) from the University of Maryland suggests perhaps yes, a great deal may have been lost.
The researchers set out to find, via an analysis of company site-visits, if the frequency of these had any noticeable effect on subsequent company performance, and they do. Most especially in terms of how well capital is deployed in the more often visited businesses.
The researchers don’t go into the mechanism of the effect but note a clear relationship (stressing their work to make sure the causality isn’t a false one) between frequency of visits and more efficient investment decisions subsequently by managers.
The paper concludes noting that this effect could be a China-only phenomenon as in the U.S. corporate access/investor days/site visits and etcetera are a well established part of a vibrant investor relations culture.
What’s clear is if this particular brand of sunlight-via-site-visits leads to better capital allocation by company managers in China then policy makers should take note and encourage the practice on a wider scale.
I’ve always been a fan of site visits, the more obscure the location the better. In addition to the discovery they also usually involve a great meal with one’s hosts. Who doesn’t want to enjoy a bit of bread and mutton Shaanxi-style (羊肉泡饃, yáng ròu pào mó) after a hard day, literally, at the coal face? You just can’t get that via Zoom!
You’ll find the paper in full via this link Site Visits and Corporate Investment Efficiency
Happy Sunday.