THE CHALLENGES OF INVESTOR COMMUNICATION - THE CASE OF CUC INTERNATIONAL, INC

We examine investor communication issues using the experience of CUC I nternational. CUC had difficulty convincing investors that its marketi ng outlays were profitable investments, leading to stock misvaluation over an extended period. To resolve this problem, CUC adopted an accou nting change and then underwent a leveraged recapitalization. Subseque ntly, it accelerated recap debt repayments and initiated a stock repur chase. CUC's experience suggests that accounting reports are not alway s effective in investor communication. While financial signals are mor e effective, their impact is not as immediate as predicted by prior re search. The CUC case suggests that investor communications is a rich a rea for future research.