The challenges of investor communication The case of CUC International, Inc.

The challenges of investor communication The case of CUC International, Inc. We examine investor communication issues using the experience of CUC International. CUC had difficulty convincing investors that its marketing outlays were profitable investments, leading to stock misvaluation over an extended period. To resolve this problem, CUC adopted an accounting change and then underwent a leveraged recapitalization. Subsequently, it accelerated recap debt repayments and initiated a stock repurchase. CUC's experience suggests that accounting reports are not always effective in investor communication. While financial signals are more effective, their impact is not as immediate as predicted by prior research. The CUC case suggests that investor communications is a rich area for future research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

The challenges of investor communication The case of CUC International, Inc.

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0304-405x
DOI
10.1016/0304-405X(94)00814-H
Publisher site
See Article on Publisher Site

Abstract

We examine investor communication issues using the experience of CUC International. CUC had difficulty convincing investors that its marketing outlays were profitable investments, leading to stock misvaluation over an extended period. To resolve this problem, CUC adopted an accounting change and then underwent a leveraged recapitalization. Subsequently, it accelerated recap debt repayments and initiated a stock repurchase. CUC's experience suggests that accounting reports are not always effective in investor communication. While financial signals are more effective, their impact is not as immediate as predicted by prior research. The CUC case suggests that investor communications is a rich area for future research.

Journal

Journal of Financial EconomicsElsevier

Published: Jun 1, 1995

References

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