Letter to the Editor

First published in Business Times, February 16, 2016

THE headline for the article “Focus on quarterly earnings contrary to long-term value creation: BlackRock CEO” (BT, Feb 3) may give the impression that a major asset manager is opposed to quarterly financial reporting. However, this is not the case as he went on to say: “To be clear, we do believe companies should still report quarterly results – long-termism should not be a substitute for transparency . . . But CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS (earnings per share) targets or analyst consensus estimates.”

He is not in favour of companies providing quarterly earnings guidance but supports more meaningful quarterly reporting.

Opponents to quarterly financial reporting sometimes conflate arguments against the release of forward-looking quarterly estimates with arguments against the release of backward-looking quarterly results. I agree with the BlackRock CEO that companies should be more focused in their quarterly reports on demonstrating progress against their strategic plans. Providing more information to help investors put quarterly results in context can help mitigate concerns that investors will react in a knee-jerk fashion to unexpected quarterly results which may in turn encourage short-termism on the part of management.

Quarterly results can provide timely indications of deviations from past or expected trends, and affect investors’ expectations of future results. The onus is on issuers to explain to investors if a deviation is a temporary change in fortunes or an early sign of a permanent change.

Some opponents to quarterly reporting have argued that companies already keep the market updated through the requirement for continual disclosure of material price-sensitive information. However, there is still a degree of discretion as to what information companies release and when they release them. In some cases, announcements by companies are more in the nature of public relations exercises than concerning matters of real substance. Quarterly reports allow investors to understand the financial implications of these announcements on a regular basis.

Different investors may also have different access to information. Controlling shareholders are either directly in the boardroom or management or have nominees representing them, and have access to information not available to public investors.

Institutional shareholders are able to have private meetings with the board and management. For other shareholders who do not have the benefit of being insiders or to have private meetings, quarterly reporting can at least go some way to reducing the informational disadvantage they face. In Singapore, retail shareholders are an important group of investors and quarterly reports is an important source of information for such investors. In the US, Regulation Fair Disclosure is intended to level the playing field for different investors when it comes to disclosure. Quarterly reporting is an important means of achieving this and there is no sign that the US is removing the quarterly reporting requirement.

In reviewing the need for quarterly reporting, I would urge the Singapore Exchange (SGX) to also consider the profile of our listings today and how changing the quarterly reporting regime may adversely affect transparency of issuers that are already suffering from a lack of transparency and good governance. When quarterly reporting was first introduced, the pursuit of foreign listings had not yet started in earnest. Today, 37 per cent of our listed issuers are foreign listings and 15 per cent are from China.

Many of these foreign listings have relatively low market capitalisation. In the case of Chinese companies, they would be required to report quarterly if they are listed on a stock exchange in China. Would the SGX be comfortable with exempting these foreign listings, especially the S-chips, from reporting quarterly to shareholders, given the widespread concerns about their governance and transparency?

Given SGX’s reluctance to have a different regulatory regime for foreign listings as I have proposed in the past, removing the quarterly reporting regime or raising the market capitalisation threshold may result in even less transparency for these listings.

Mak Yuen Teen