Economic Affairs

Quarterly reporting losing its shine

What investors seek is information that is reliable, not just regular reporting of numbers. Ideally, they want an in-depth discussion of strategy

For many companies, the Singapore Exchange's (SGX's) planned review of the quarterly reporting regime for corporate financial results cannot come soon enough.

An opinion poll at the Singapore Institute of Directors (SID) Directors' Conference in September 2014 found an overwhelming 78 per cent of the more than 600 directors and corporate leaders present were in favour of abolishing mandatory quarterly reporting - and making it voluntary.

To understand the headache quarterly reports can present, consider the position of the many companies with Dec 31 year-ends.

They are now in the midst of rolling out their annual report card but, at the same time, they are also having to keep an eye on how this first quarter - now halfway over - is shaping up, especially given the ongoing stock market gyrations.

Even as one reporting cycle ends, another one starts, leaving companies with little breathing space in between.


Since 2003, quarterly reporting has been mandatory for companies with a market capitalisation of $75 million and above. Based on Dec 31 figures, that would mean about over half of all listed firms.


Before that, half-yearly reporting was the norm.

Opposition greeted quarterly reporting when it was introduced, but companies have adapted to the regime.

Still, recent moves by Britain and the European Union (EU) to make such reports voluntary have re-ignited the debate.

Professor of Accounting Cheng Qiang, who is also dean of the Singapore Management University (SMU) School of Accountancy, says given the international developments, "it is natural for market participants to question the usefulness of quarterly financial statements".

He added: "SGX is under pressure to attract companies. It needs to be mindful about the listing and disclosure requirements, including quarterly reporting."

Much of the debate focuses on the quality of information from quarterly reporting and how useful it is for investors.

Late last year, asset manager Schroders took the unprecedented step of writing to all the FTSE-350 companies that it had invested in to encourage them to step away from quarterly reporting and instead focus on longer-term performance.

There are studies arguing that while quarterly reporting provides regular information, investors do not tend to find this particularly useful, while management is so preoccupied with the latest quarter's figures that they may reject attractive projects.

Global head of stewardship at Schroders Jessica Ground told The Straits Times: "We're long-term investors. We want to know how sustainable these figures are. For us, changes between quarters are not going to change the investment case dramatically."

"What we are looking to have, is more of an in-depth discussion. It's not about frequency of reporting, it's about a 'deep-dive'," Ms Ground notes. And it's not just about getting the revenue and the profits. Ms Ground argues that what would be useful too is information on different areas such as carbon or water use. Or with banks, it could be how much they are spending on technology.

Deputy managing partner at KPMG Singapore, Mr Ong Pang Thye, believes one key question is whether quarterly reporting helps investors make sense of companies' financial health.

He points to a study commissioned by KPMG and the other Big Four accounting firms, "Do Investors Respond Differently To Interim Versus Final Quarterly Earnings Numbers", conducted by the SMU's School of Accountancy.

A total of 307 Singapore-listed companies which reported quarterly earnings between 2011 and 2013 were included in the study. The results, released in July last year, found that investors reacted more strongly to earnings in the final quarter compared with those in the interim quarters.

This suggests that the final quarter results, which are audited, may be seen as more reliable than the other quarters.

KPMG's Mr Ong says that this would mean investors want information that they can trust. He said: "Companies should take that into consideration if investors continue to demand quarterly reporting."

In other words, the frequency of reporting may be less important than the actual information - and its reliability - contained in the statements.


Apart from the discussion on the quality of corporate results, another criticism levelled at quarterly reporting is that it encourages management to take a short-term view.

A survey that is often quoted, by Graham, Harvey and Rajgopal in 2005, studied the behaviour of 400 chief financial officers. It found that a majority of these CFOs would not take on a project which had a "positive net present value", meaning it brought in cashflows, but would fall short of the analysts' earnings' expectations in the current quarter.

That suggested management would not take on projects that brought money into the firm over the longer term but had a dampening effect on earnings in the present quarter.

The bosses were more concerned with the upcoming set of numbers than the longer term financial prospects of the company.

In other words, there are studies arguing that while quarterly reporting provides regular information, investors do not tend to find this particularly useful, while management is so preoccupied with the latest quarter's figures that they may reject attractive projects.

Senior management would no doubt be glad to be relieved of the burden of preparing these quarterly statements and the package of information that often stretches to dozens of pages. They would also be pleased to be spared having to find a good story to tell every quarter.

One chief financial officer told The Straits Times: "There shouldn't be that much change from quarter to quarter. And if it is a long-term strategy, we should not be changing it every quarter."

What about the retail investor who relies on information contained in quarterly reports?

That concern is answered by the existing requirement to disclose information as soon as something "material" happens.

A well-known fund manager also says that retail investors should spend time reading and understanding the annual report which sets out the strategy of the company. That should be the first step towards understanding a company.

Still, the imposition of rules such as quarterly reporting often reflect the period in which they came in.

When quarterly reporting was debated, the Asian financial crisis was over and there was a greater push for transparency and corporate governance among companies.

Singapore also wanted to adopt best practices and boost its standing as an international business and financial centre. A key jurisdiction, the US, has mandatory quarterly reporting.

At the time, the Council on Corporate Disclosure and Governance, when it unveiled its recommendations, spoke about the need for more timely reporting given the "rapidly evolving economy and increasingly volatile markets".

It also cited "smaller and younger companies, with an uncertain record, that carry the greater risk and, therefore, have an obligation for more frequent reporting".

Now, Singapore's corporate governance standards have reached a certain level. Even for the smaller companies, even if they weren't reporting quarterly, they would likely be submitting updates to their bankers. Markets are even more volatile now but the days of double-digit growth and returns may be over. In that sense, profits and revenues are unlikely to show much change either way over the period of a quarter.

Increasingly, the focus is on the long term.

Schroders is one proponent. Early this month, Blackrock's chief executive Larry Fink was reported to have asked chief executives of top US companies to focus on creating long-term value instead of emphasising quarterly targets. He is also among a group of activist investors in the US, including Warren Buffett, who are looking at corporate governance issues, including the relative benefits of reporting earnings on a quarterly basis as opposed to less frequently.

Singapore investors deserve a robust debate on the merits of quarterly reporting.

However, while few doubt that everyone in the investing community is best served by financial results of a high quality that offer valuable insights into a company's long-term performance rather than the robotic generation of a new set of numbers every three months, the question will be how best to achieve that.

A version of this article appeared in the print edition of The Straits Times on February 17, 2016, with the headline 'Quarterly reporting losing its shine'. Print Edition | Subscribe