Corporate site visits are a win-win

It is standard practice for equity analysts to attend site visits at companies they invest in or are planning to invest in. The advantage of these site visits is that they allow investors to get a better idea about the quality of the company’s production processes and the like while businesses can provide ‘soft information’ that helps investors better understand how they think and work. And it turns out these site visits are a very good tool for companies to reduce the volatility of their share price and get a more stable shareholder register.

A group of researchers in China analysed more than 38,000 company site visits between 2013 and 2019 their impact on share price volatility. They could do that because in 2012 the Chinese government passed a law that forces company to publicly disclose site visits by investors including what was discussed at these visits.

Here is a simple overview of the information discussed by the companies at these site visits and the questions asked by investors.

Questions asked and answers provided at site visits

Source: Liu et al. (2024)

Note that the discussions focus mostly on sales and corporate strategy and less on the money side of the business (which makes sense, since site visits typically happen at manufacturing or sales sites). But note, how there is a bit of a mismatch. Questions lean more towards corporate strategy while answers lean more towards sales.

That creates a friction that reduces the effectiveness of a site visit.

In general, the better aligned the information given by a company at a site visit with investor questions, the bigger the impact. And the more closely aligned the information given by the company is with key investor concerns, the bigger the impact of the site visit.

And the impact can be significant. The study finds that a corporate site visit tends to reduce share price volatility by 5% of the typical volatility of the share price. So, if a company has a share price volatility of 20%, the volatility after a site visit drops by about one percentage point.

Another effect of the site visit is that analysts who cover the company for brokerage firms provide more accurate forecasts after the site visit than before and are more aligned in their assessments of a company. This tells us that it is not the event itself that matters, but the information provided to the visitors. This additional information increases transparency, and thus builds trust and accuracy, which in turn creates a more stable share price and a more loyal investor base.

But as I said above, the effect is stronger if the company focuses on the concerns of investor at the site visit (rather than distract them from issues the firm might have) and provides the best information and the highest transparency possible – obviously without breaking any laws around disclosure of material information.

And the lesson for investors? If you get a chance to attend a site visit, go. No, the company won’t give you any hard or material information, but you will still learn important things about the company and the people who work there. And that will help you form a more accurate opinion of the risks and opportunities of an investment in that company.