Long Term Investor Relationships and Corporate Financial Disclosure Practices

Abstract

This research investigates the underexplored nexus between the temporal orientation of investor relationships and the qualitative dimensions of corporate financial
disclosure. Departing from conventional studies that treat investors as a homogeneous
group or focus primarily on institutional ownership percentages, we propose a novel
conceptual framework that categorizes investor relationships along a continuum from
transactional to transformational, based on investment horizon, engagement depth,
and informational symbiosis. We hypothesize that firms with a preponderance of longterm, relationally-embedded investors (termed ’transformational investors’) will exhibit
financial disclosure practices characterized by greater forward-looking orientation, enhanced transparency regarding strategic trade-offs and intangible assets, and a higher
tolerance for the disclosure of interim negative performance, compared to firms dominated by short-term, transactional investors. To test these propositions, we develop an
original, multi-method methodology. First, we construct a proprietary ’Investor Relationship Horizon Index’ (IRHI) using a combination of machine learning text analysis
of investor communication transcripts, analysis of shareholder registry turnover, and a
survey of corporate investor relations officers. Second, we employ a novel ’Disclosure
Quality Depth’ (DQD) metric that moves beyond disclosure quantity to assess the
strategic usefulness, contextual richness, and temporal orientation of financial reports
and voluntary disclosures. Applying this framework to a longitudinal dataset of SP
500 firms from 1998 to 2004, our results reveal a statistically significant and economically meaningful positive association between a firm’s IRHI score and its DQD metric.
Furthermore, we find that this relationship is moderated by industry volatility and mediated by reduced managerial myopia. The study contributes a new theoretical lens for
understanding disclosure behavior, grounded in relational contracting and stewardship
theory, and offers practical implications for regulators advocating for long-termism in
capital markets and for corporate boards structuring their investor base.