First published in Business Times on December 13, 2017
By Claire Huang
IN A possible prelude to the scrapping of quarterly reporting, the local bourse operator has proposed a series of tweaks to disclosure requirements under listing rules to tighten existing loopholes.
While the refinements are welcome, having more information from listed companies on an ongoing basis should not pave the way for quarterly reporting to be tossed out.
On Dec 7, the Singapore Exchange (SGX) said it has proposed tweaks to disclosure rules in several areas including interested persons transactions (IPT), secondary fund-raising and huge transactions and loans.
These enhancements to ongoing disclosures are refreshing as SGX zooms in on the weak points in the system.
If the ultimate goal is to improve transparency in order to benefit investors, then quarterly reporting should remain although the rules can be reviewed.
As much as ongoing disclosures are helpful in weeding out dubious firms, investors already have to deal with a bunch of data, not to mention they may likely be inundated with the additional information following the suggested reforms.
Therein lies the need for quarterly reporting: a consolidation and summary of all the previous disclosures and the latest financial impact on the company in a readable, manageable and therefore digestible manner.
Ongoing disclosures and quarterly reporting are like Batman and Robin – they complement one another and together they provide investors with the tools to understand a company not just in a timely fashion but with more depth.
Take a look at the Hong Kong Stock Exchange and you will find that it does not view disclosure rules and quarterly reporting as substitutes.
Corporate governance advocate Mak Yuen Teen points out that Hong Kong imposes quarterly reporting on companies in their Growth Enterprise Market (GEM), the equivalent of Singapore’s Catalist.
Smaller companies here are now not required to report quarterly for cost reasons but in Hong Kong, the approach stems more from how it benefits investors.
“So Hong Kong actually takes the view that quarterly reporting is more important for smaller companies with less track record. There is merit in that thinking because smaller companies tend to have less institutional investors owning shares and therefore less monitoring by such investors – and also less coverage by analysts,” says Prof Mak.
Non-compliance
The move to review quarterly reporting rules is not the concern here. Recalibration should be carried out from time to time.
What is a worry, as Prof Mak notes, is that if SGX exempts companies from quarterly reporting, then the bourse operator must find ways to ensure companies that are not very transparent, such as those with results and annual general meeting delays, restatements of financials, modified audit opinions and frequent queries, are not let off the hook.
There is a “need to be careful in thinking that if we enhance disclosure rules, we can do away with quarterly reporting” because the latter gives investors information about the financial impact that disclosures may not, Prof Mak adds.
In an opinion piece in October, Prof Mak and corporate governance researcher Chew Yi Hong listed examples of companies that they believe have not complied with the continuing disclosure obligations over a relatively short period of time.
By extrapolation, those examples listed then suggest that non-compliance with continuous disclosure obligations is probably common enough.
Just as important in the entire equation is enforcement.
As Prof Mak rightly puts it, if continuing disclosure obligations are enhanced but not monitored or enforced, then it defeats the purpose of tightening those loopholes in the first place.
To put it bluntly, what has started out with good intentions can inadvertently turn into a lame duck.
