When assessing the need to have frequent access to a company’s performance, is it always necessary for companies to submit quarterly financial performance reports? Or, is half-yearly reporting a sufficient time frame?
These questions are becoming pertinent as some stock exchanges move to scrap or limit quarterly reporting regimens. Most recently, the Singapore Exchange Limited (“SGX”) announced that it would change its reporting regimen to remove the requirement for quarterly earnings reporting to instead only require half-yearly reporting. The change provides for risk-based exceptions, which require certain companies to continue quarterly earnings reports if:
- A company received a disclaimer, adverse or qualified opinion from its auditor for the most recent consolidated financial statements;
- Auditors expressed a material uncertainty relating to a going concern; or
- SGX RegCo expressed regulatory concerns with a company, which may include breaches to material disclosures, or issues that may have a material impact on a company.
Although financial reporting practices may change, SGX has affirmed its continuing disclosure requirements for other matters including interested person transactions, asset disposals, capital raising, and other financial assistance proposals.
SGX is the most recent stock exchange to implement a change in corporate reporting, but it is not alone. Most companies listed on the Australian Securities Exchange only need to report twice per year, although mining, oil and gas producing entities must provide quarterly earnings. Similarly, the Stock Exchange of Hong Kong Limited does not require quarterly reporting for companies listed on its Main Board, although companies on the Growth Enterprise Market (“GEM”) are required to submit quarterly statements. Additionally, quarterly reporting requirements for UK companies were repealed in November 2014, and European markets have moved to half-yearly reporting. Currently, the U.S. Securities and Exchange Commission is evaluating responses to whether it should relax the reporting requirement for U.S.-listed companies from a quarterly to a half-yearly basis.
For Singapore, the move toward half-yearly reporting is bringing some changes to corporate governance practices. Specifically, the Corporate Governance Advisory Committee amended the Practice Guidance of the Code of Corporate Governance to bolster practices relating to a company’s audit committee and shareholder engagement. For both practice areas, the onus will be on companies to communicate with shareholders regarding matters that could impact company performance. Similarly, audit committees should be more proactive in addressing matters that auditors may raise resulting from an audit.
The long-term impacts of shifts in reporting are still to be determined. A UK study from March 2017 found that despite a reduction in analyst cover, the change in reporting did not necessarily impact corporate investment; the paper did not evaluate impact on shareholder experience. Another research paper, from August 2018, looked at whether investors are able to accurately value companies if they do not report on a quarterly basis. One conclusion was that reduced reporting could lead to greater volatility in price and trading volumes. Of course, how you interpret those studies depends on where you’re sitting — and on your investment priorities and timeframe.
Jeff is a manager covering Singapore and South East Asian markets.