Better engagement between firms, investors can affect valuations: Study

Investors will tolerate underperformance in short term if long-term plans clearly stated

- Rosalind Ang

Some stock market investors in Singapore care more about how companies plan and execute their strategies than how much cash they return to shareholders, a study found.

The study by the Stewardship Asia Centre (SAC) also found that most shareholders are willing to overlook short-term underperformance if firms can communicate their long-term plans clearly.

Yet, fewer companies have caught on, highlighting a greater need for closer alignment in investor relations even as efforts are ramped up to restructure other areas of the local stock market to boost liquidity and investor confidence, SAC said in a report released on Oct 28.

Its study focused on engagement between corporates and institutional investors and its impact on influencing capital allocation and long-term company value.

The study’s findings are based on a survey of 110 investors and 110 corporations. The survey was conducted online from July 28 to Aug 31.

Of the 10 corporate responses, 85 were from Singapore Exchange-listed companies and 25 from companies intending to list on the SGX.

SAC’s report, released in partnership with the Monetary Authority of Singapore (MAS), also found that most respondents believed transparent, high-quality engagement not only builds trust between companies and their shareholders, but can also influence valuations.