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Rating Research Survey Reveals Growing Mistrust by Investors in Investment Information

Analysts Also Express Dissatisfaction with Quality of Information

Bedminster, N.J. (17 July 2002) - Investors have a significant lack of confidence in their traditional sources of information about publicly traded companies, according to a survey conducted by Rating Research LLC (RRC), a firm specializing in the assessment of corporate reputation. Only 13% of investors say they are "very confident" in investment advisors as a source, 10% in government, 7% in the media, 6% in large brokerage firms and 6% in a company's advertising and communications.

Presumably as a result of the recent corporate scandals, investors' confidence in financial information provided by publicly traded companies also continues to drop drastically, At the end of June, more than half (51%) of investors stated they were "not very" or "not at all" confident in corporate financial information. One month earlier, less than one-fourth (24%) of investors expressed the same feeling.

Almost six in ten investors (58%) say they are "less confident" in financial information than they were one year earlier.

Equally as jarring is the lack of confidence analysts have in the information they receive from their sources. Although 92% of analysts say that direct contact with a company and its financial reports or SEC filings is their primary source, only 23% feel "very confident" in the quality of information from corporations.

"These findings may represent a meltdown of faith by the American mainstream in the information they receive from established institutions", said Prof. Stephen A. Greyser, world-renowned marketing and reputation expert, Harvard Business School and RRC Board Member. "We need many entities — the media, government, corporations, and financial analysts — to play a part in restoring investor confidence in corporate reputations and in company reporting and business practices."

The RRC survey included two waves of interviews with 1,000 U.S. investors at the end of May and again in late June. One hundred analysts who follow the Retail, Pharmaceutical and Electric Power industries were interviewed in late June and early July. Additionally, RRC conducted a series of six focus groups among analysts in the same industries to provide further depth to the information collected in the survey.

Importance of Reputational Information Grows But Its Quality is Doubted

Investors and analysts increasingly put a premium on information about companies' reputations, but are dissatisfied with what is available to them. More than two-thirds (68%) of investors and virtually all analysts (84%) say access to information on the reputation and business practices of publicly traded companies is very important. In fact, more that one half of investors (54%) say that information on a company's reputation is more important today than one year ago. And, 65% of investors believe CEOs are "not as concerned as they should be" about the reputation of their companies, with almost 47% attributing that to self-interest, including personal financial gain.

However, confidence by investors and analysts in the quality of information about reputation available to them is poor at best. According to the survey, only 14% of investors are "very confident" in the quality of information they have access to while only 7% of analysts are "very confident" in the information they have on the companies they follow.

"We shouldn't be too surprised by this," says Prof. Greyser. "Among other things, we've been in an environment of media interest in companies driven by personality and by a sense of 'what's hot'. Couple this with the number and depth of scandals we've all witnessed, it is no wonder investors are questioning the information they see and hear."

Analysts Cite Information as Insufficient, Of Poor Quality

When asked why they are unhappy with the quality of the information they get, analysts offer several reasons. Forty-three percent mention that the "quality of the information is poor" or "there is not enough information" while 24% feel that companies need to be "more forthright". And, the trend seems downwards. Fully one-fourth of analyst respondents express less satisfaction with the quality of the information available today than one year ago.

Despite serious reservations about traditional sources, analysts continue to depend on them. Following direct contact with the company, analysts look to the media for information (79%), other analysts or analyst research (53%), word of mouth (33%), and their own experience (6%). However, as noted, less than one-fourth of analysts are "very confident" in corporate information. This compares with 39% of analysts who are "very confident" in word of mouth communications, 33% their own experience, 25% media, and 9% other analysts or analyst research.

Rating Research, a joint venture between The Ratrix Group and Opinion Research Corporation, provides research and opinion focused on corporate reputation. RRC assigns corporate reputation ratings to the leading companies in each industry surveyed and publishes these ratings for use by interested third parties.

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More details on survey and methodology available.