What it is:
Investor relations (IR) refers to the function within a public company that is responsible for managing and communicating information to the public pertaining to the company's operations, managerial organization, and financial standing.
How it works (Example):
Public companies manage their investor relations function either through an in-house IR department or by outsourcing to an external investor relations firm that specializes in these activities. The IR team is responsible for maintaining the company’s most up-to-date information with regard to its products and services. It also maintains the latest information about the company's operational and financial performance in its quarterly and annual reports, as well as its performance in the securities markets.
To illustrate, suppose an investor takes an interest in company XYZ as an investment prospect. If he wishes to receive detailed information about any aspect of company XYZ, he contacts XYZ's IR department. The IR department can provide him with descriptions of the company's products and services as well as financial statements, financial statistics, and an overview of the company's internal organization.
Perhaps the most important function of the IR team is to interface with investment analysts and other parties that represent institutional investors. Analysts frequently publish research and opinions regarding public companies which influence the investment community.
Why it Matters:
A company's IR department provides a channel through which the investment community, including investors, analysts, or any other interested party can easily access information about the company. This is particularly important for information transparency and for promoting a sense of integrity and trustworthiness on the part of the company.