Quarterly reporting: Why a review makes sense

To report or not to report quarterly results is again asked of Singapore-listed companies.

Such soul-searching has taken place from time to time since Singapore mandated quarterly reporting in 2003. The outcomes of past episodes have been to keep the status quo.

However, when larger capital markets do away with this practice completely, Singapore cannot but take heed.

The jurisdictions in question are the United Kingdom and European Union. Since last year, their listed companies have been freed from the need to release quarterly reports. This came on the back of over 10 years of strong opposition from those in favour of abolishing such reports because of the perception that they lead to an undue focus on "short-termism" by management.

In the aftermath of the global financial crisis in 2012, John Kay, a prominent economist in the UK, mooted this idea powerfully in The Kay Review. This report set the ball rolling in the rest of the continent. In the EU, a lack of harmonisation in reporting regulations had given rise to an inconsistent quality of disclosure in quarterly reports. Criticism from various quarters slowly turned the tide decisively to end them in the EU.


Thus the UK and EU have joined the ranks of the Hong Kong stock exchange in not requiring quarterly reporting. The practice in Hong Kong to report financial results only semi-annually was defended vociferously by the local business community in 2002 and 2007, when there were attempts to introduce quarterly reporting there.

Nevertheless, the practice continues in the US. Despite various dissenting voices in the wake of the global financial crisis in 2008, the status quo has prevailed. US-listed companies continue to disclose quarterly results that are condensed and unaudited in a prescribed format, as they have been doing since 1970.


In its public statement last month, the Singapore Exchange confirmed that it is reviewing recent developments in financial reporting, noting that the regulatory landscape has changed since 2003 when quarterly reporting was made mandatory.

It is as good a time as any to bring back quarterly reporting on the agenda for discussion. Making it voluntary may not be as big of a change, given the experience of other jurisdictions that have made the change. But even if it stays mandatory, there are other areas of improvement that can be made. Singapore cannot stand still as the world moves on to keep investors better informed.

So what has changed that might affect local policy on quarterly reporting?

To start, the fact that other stock markets have changed their stance is significant. Amidst shifting global norms and expectations, the decision to go against the crowd may affect investor sentiment and the willingness of companies to list in Singapore.

The rationale against quarterly reporting has not gone away: It encourages excessive short-termism and forces the incurrence of additional administrative burdens and costs. Before it was mandated, the rule was strenuously debated and had many opponents. Among them, Mr S. Dhanabalan, then chairman of Temasek Holdings, famously said of the short-termism of quarterly reporting: "We seem to have tilted in favour of traders in stocks rather than investors in stocks."

After the passage of more than 10 years, that sentiment seems to be even stronger among corporate insiders. An opinion poll on quarterly reporting was taken at the Singapore Institute of Directors (SID) Directors' Conference in September 2014. An overwhelming 78 per cent of the over 600 directors and corporate leaders who attended voted in favour of abolishing mandatory quarterly reports and making it voluntary.

What if the rule is indeed changed from mandatory to voluntary quarterly reporting?

The experience in the UK seems to be that most companies will be slow to depart from quarterly reporting. Since the UK removed the mandatory requirement to issue quarterly reports in November 2014, there has not been a rush by listed companies to abandon quarterly reporting by taking advantage of the new rules.

In fact, the asset manager, Schroders, was moved at the end of last year to write directly 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. It is not certain if these companies have opted to continue the quarterly reporting practice because of a firm belief in the inherent merits of the policy, to meet investor or stakeholder expectation or pressure, or if it is merely a case of their banking documentation containing provisions that oblige them to continue the reporting frequency.


To be sure, there are good reasons to insist on mandatory regular disclosures on the basis that shareholders are entitled to know more regularly what is going on in the companies they own and more timely disclosures will give rise to more transparent and efficient capital markets.

This is especially so in today's volatile markets. Smaller investors may depend on quarterly reports to level the playing field between them and the larger controlling shareholders. Quarterly reports also instil financial discipline in companies and put them on a par with global standards, particularly if they are trying to attract foreign investors.

Given this, if the authorities do decide not to do away with mandatory quarterly reporting, they could at least tweak the rules to make it less onerous.

First, the bar for mandatory quarterly reporting can be raised as smaller companies face a relatively larger compliance and resource burden. The bar for quarterly reporting is currently set at companies with a market capitalisation at or above $75 million on Dec 31 each year. This is an arbitrary level that seems to be too low.

It should be borne in mind that once a listed company crosses that threshold, it will be saddled with the burden of quarterly reporting forever more, even if its market cap should subsequently fall below $75 million.

The Singapore Corporate Awards, on the other hand, define small caps as those below $300 million in market cap. If the quarterly reporting threshold was raised to $300 million, some 230 companies, or about 30 per cent of our listed companies, will still be subject to mandatory quarterly reporting.

Another tweak to the rule would be to amend the single-day test on Dec 31 to determine market cap. A sudden spike in the share price on Dec 31 may cause a company to meet the required market cap for mandatory quarterly reporting, even though the market cap may sink far below that threshold for most of the year.

A much more reliable determinant would be one based on a longer period of time, such as a weighted average share price over a continuous period of, say, 120 market days. This would be more representative of a listed company's true size and reflective of the resources it can muster.

It is as good a time as any to bring back quarterly reporting on the agenda for discussion.

Making it voluntary may not be as big of a change, given the experience of other jurisdictions that have made the change. But even if it stays mandatory, there are other areas of improvement that can be made.

Singapore cannot stand still as the world moves on to keep investors better informed.

•The writer is Head of Corporate at the law firm Lee & Lee, and Deputy Chairman of the Advocacy Committee of the Singapore Institute of Directors.

A version of this article appeared in the print edition of The Straits Times on February 02, 2016, with the headline 'Quarterly reporting: Why a review makes sense'. Print Edition | Subscribe