Stage set for SGX to review quarterly reporting

Singapore

AFTER more than 12 years of forcing companies to release corporate results every three months, the Singapore Exchange (SGX) may be relooking the controversial practice of quarterly reporting.

The Business Times has learned that SGX could be reviewing quarterly reporting in the wake of recent moves to scrap the requirement in other major financial markets such as the United Kingdom and Europe.

"We are reviewing recent developments in financial reporting. We are aware that there are strong proponents and arguments on both sides of the quarterly reporting debate," an SGX spokesman told The Business Times in an e-mail, adding that the regulatory landscape has changed since quarterly reporting was made mandatory in Singapore in 2003.

"For example, proponents of quarterly reporting maintain that quarterly reports give more timely disclosure in volatile markets and instill financial discipline," it noted, adding that "those calling for quarterly reporting to be abolished point to the risk of short-termism that quarterly reporting may encourage, the preparation cost and the practical value of such reports, particularly when companies have continuing obligations to announce material events as and when they occur".

The exchange also said it would consult the public if there is to be any change in the listing rules.

This relook comes after other developed markets moved in recent years to abolish mandatory quarterly reports.

In November 2014, for instance, the United Kingdom stopped requiring companies listed there to issue quarterly reports, also known there as "interim management statements". This move came after a European Union transparency directive in 2013 that required EU members, including the UK, to remove the obligation to publish these statements by November 2015.

The United States, however, still requires quarterly reporting, though there have been increased calls in recent times to abolish it. Meanwhile in the Asia-Pacific, some markets impose the requirement while other do not - Malaysia and Thailand both require it though Indonesia does not.

Hong Kong also does not, except for companies on its junior board, the Growth Enterprise Market (GEM) - the rough equivalent of Singapore's Catalist board. Australia also only requires quarterly reports for certain companies that do not have a track record of revenue or profit.

In Singapore, mandatory quarterly reporting is an SGX listing rule, a Monetary Authority of Singapore spokesman noted in an e-mail response to The Business Times.

Current rules require companies with a market capitalisation of at least S$75 million on the last trading day of each calendar year - usually Dec 31 - to report quarterly financial results.

After more than a decade, quarterly reporting remains a controversial issue here. Companies have often voiced criticism of the requirement. At a Singapore Institute of Directors' Conference in September 2014, an opinion poll was conducted among conference delegates on whether the quarterly reporting requirement should be abolished - the vote in favour was overwhelming. Market watchers remain divided on the practice's usefulness.

"Quarterly reporting is more important in markets such as ours where many companies have major shareholders who have access to inside information and it is important to level the playing field by ensuring good continuous disclosure and quarterly reporting. One can make the case that quarterly reporting is even more important for smaller companies where there is less analyst coverage and information available," said corporate governance advocate Mak Yuen Teen.

He added that it would be "simplistic to say that quarterly reporting by itself promotes short-termism and contributes to accounting scandals", adding that "one could extend the argument and say that many decisions are long term so even half-yearly or annual reporting may be too short term ... Companies arguing that quarterly reporting promotes short-termism should perhaps look at whether they have a good balance between short-term and long-term remuneration components."

But Roger Tan, president of advocacy group Small and Middle Capitalisation Companies Association, said the costs of mandatory quarterly reporting can be "very taxing" for smaller listed companies, adding that regulators should let companies decide for themselves whether to do this.

"It increases administrative cost of listed companies, volatility in share price, and ultimately with limited benefit to investors. Investors have to remember that they ultimately undertake these costs ... If business cycles are getting shorter, quarterly reporting may increase volatility without adding value."

Corporate lawyers did not come down strongly on either side of the debate, though some pointed out that scrapping mandatory quarterly reporting does not mean that all listed companies would stop publishing quarterly reports.

"While it's good to have more frequent updates so that stakeholders are kept informed, especially with increasingly compressed business cycles, quarterly reporting has also led some companies to window-dress their accounts, or make business decisions to produce more favourable quarterly figures," said TSMP joint managing director Stefanie Yuen Thio.

"This is particularly true of businesses whose attractiveness is yield-based, such as Reits and business trusts. As a shareholder, I'd rather the company's management make business decisions that will yield the best returns, even if that means a longer holding period."

Lee & Lee corporate head Adrian Chan said that frequent quarterly reporting "can be a contributory factor" to accounting lapses "when company executives are pressurised to show results every three months".

"But I also believe that quarterly reporting is here to stay and that the merits outweigh the disadvantages. The system just needs to be regularly tweaked and fine-tuned ... I believe the regime to be a flawed one because the size threshold is too low."

The single-day test - of a firm's market cap as at Dec 31 - was also "a much too blunt and irregular instrument to be used", he said.

Mr Chan added that he still stood by his suggestion, in a May 2014 article published in The Business Times, that only listed companies with a market cap of at least S$300 million be required to produce mandatory quarterly reports.

The single-day test of market cap could also be changed to a weighted average instead, he said.