The Challenges of Investor Communication: The Case of Cuc International, Inc

Posted: 23 May 1998

See all articles by Paul M. Healy

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

Date Written: June 1994

Abstract

We examine investor communication issues faced by public corporations using the experience of CUC International. CUC had difficulty convincing investors that its new product marketing outlays were profitable investments, leading to stock mis-valution over an extended period. To resolve this problem, it adopted a series of accounting and financial policy measures, including a leveraged recapitalization, accelerated debt repayments, and a stock repurchase. CUC's experience suggests that accounting is not always effective in facilitating credible and timely 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.

JEL Classification: G24, M10, M40

Suggested Citation

Healy, Paul M. and Palepu, Krishna, The Challenges of Investor Communication: The Case of Cuc International, Inc (June 1994). Available at SSRN: https://ssrn.com/abstract=5416

Paul M. Healy

Harvard Business School ( email )

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Krishna Palepu (Contact Author)

Harvard University - Harvard Business School ( email )

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