Ending Quarterly Reporting?

We refer to the article on Business Times – SGX set to review mandatory quarterly reporting. Additionally, readers may refer to the screenshot below of an article posted on The Edge, where we were asked for our comments on this matter.

Given how many larger capital capital markets – namely UK and EU following the Hong Kong Stock Exchange, have been moving away from the practice of quarterly reporting, SGX has indicated readiness to move in the similar direction.

There have been changes in the international landscape. The United Kingdom and European Union have done away with quarterly reporting

– Tan Boon Gin, CEO of SGX Regulation

Currently, listed companies with a market capitalisation of at least S$75 million must report results on a quarterly basis. That is 70% of the 750 companies listed on the SGX. The proposed change is to increase the threshold of S$75 million to S$150 million, resulting in only 38% of the listed companies having to practice quarterly reporting.

Asides from the fact that abolishing the practice of quarterly reporting would bring cost savings in terms of compliance cost, those calling for quarterly reporting to be abolished point to the risk of of short-termism that quarterly reporting may encourage. Such short-termism results in companies focusing on generating profits in the next quarter instead of making investments with good 5-year prospects. Hence, to encourage such companies to take a long-term view, regulators have shifted corporate reporting from quarterly to semi-annually.

Will semi-annual reporting prevent companies from practicing short-termism? I am doubtful.

It would probably just mean that these companies shift their focus to 6 months instead of the usual 3 months. I find that if regulators wanted to prevent the problem of short-termism, they should target the incentive structures of companies rather than the reporting standards. Perhaps having bonuses tied to the management executives’s performance over the past 3 to 5 years, rather than just the last year. Such an approach would probably have a better effect encouraging executives to look beyond the short term to the longer term.

Furthermore, without quarterly reports of non-US companies, investors would attempt to gain information from assessing trends of US peer companies that reports quarterly. This just leads to mis-pricing of non-US companies in the near term. Studies have shown too how the stock price of non-US peer companies reporting semi-annually being two times more sensitive to US earnings news. After all foreign and US companies are never really perfect substitutes of each other.

If the intention of abolishing quarterly reporting is to prevent short-termism, one has to question if the new policy would truly solve the underlying issue.



About the Author

SG Value Investor
I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.