Survey: Firms stingy on info
Inadequate financial reporting, as far as small- and mid-cap companies compared to larger ones are concerned, and the need for more technical information in the announcement of quarterly results and mergers and acquisitions moves, are two of the main findings of the special survey by Novus Finance and VRS on the quality of financial reporting by companies listed on the Athens Stock Exchange. The data reveal beyond doubt the information problems stemming from listed companies’ tendency to improve their reporting when news is good and to keep it to a minimum when results are below expectations. Equally problematic is the non-publication of accounting data based on International Financial Reporting Standards (IFRS), while in some domains that are crucial to forming investors’ views, there was a particularly low level of information. To the question, «How do you assess listed companies’ information to the investing public?» 64 percent of market professionals replied «good/very good» for blue chip companies (in the FTSE/ASE-20 index). Four in five, however, characterized the reporting by mid-cap companies as «mediocre,» and 84 percent branded the information quality from small-cap firms as «bad/very bad.» It emerges that professionals are more satisfied with information coming from blue chips, which are covered by analysts anyway and monitored closely by institutional investors. Blue chips appear more generous in providing information as they are the focus of extensive research and analysis. On the contrary, mid-cap companies may have not been used to offering adequate information as they are less covered by analysts and attract less interest from institutional portfolios. The survey’s researchers point out that this should not be used by those firms as an excuse. On the contrary, the firms should acknowledge that times have changed and that they cannot continue to starve market professionals of specialized information. Eighty percent of respondents said financial reporting was an «important/very important» factor in making investment decisions, stating they expect Greek listed companies to upgrade their financial reporting and to provide as much specialized financial data as possible. In other words, professionals cannot reach rational decisions without complete financial information by listed companies, which are seen to indirectly hinder investment decision-making by institutionals and analysts. Quantified information was deemed «important/very important» by 92 percent of respondents, while 24 percent assessed purely verbal announcements as being «of moderate importance» in their decision-making. Institutionals and analysts need quantified results for their evaluation models, thus they turn to figures and less to verbal information; the latter could be used for evaluation models only if accompanied by sufficient numerical information. Market professionals further said that small- and mid-cap companies have not made the necessary steps to date to provide quantified information and allow the use of specialized financial models. Respondents also described the information domains they consider most important for their decision-making. These are future prospects, revised historical data, accounting standards, risk factors and sector data. Yet the information provided in several of these domains is «bad/very bad,» particularly concerning risk factors, use of derivatives, revised historical data, sector data and macroeconomic data. Only 4 percent answered they thought listed companies’ information about investment hazards was «good/very good.» Missing M&A data The problem of insufficiency of information in announcing quarterly results is serious, but that of poor reporting on mergers and acquisitions is even worse. Only a small minority of Greek listed companies announce essential data about such activities, the survey has found. While no more than 12 percent consider reporting by Greek listed companies as «insufficient/barely sufficient,» 32 percent of respondents assessed information about quarterly results reporting as such, with the number of dissatisfied respondents rising to 52 percent concerning mergers and acquisitions information. International surveys suggest mergers and acquisitions data provided by companies should include the following: buyer, seller, company sold, percentage purchased, share composition before and after sale, cost of sale, funding process, sales category affected, and historical data of the company sold. No news, bad news On the connection between financial reporting levels and result improvement, 48 percent of professionals said there was a «big/very big» positive correlation between them, while as many consider there is «moderate» positive correlation. Good and systematic financial reporting is an indication of good will and cooperation on the company’s part with investors, consequently improving the share’s market image. On the other hand, it underlines a common trend in Greece where good corporate news is announced and bad is often withheld. Greek listed firms have made the problem worse by dressing up their reporting for many quarters when results are positive and abandoning that policy when a bad quarter comes. The companies’ course to date proves most of them have not embraced the cardinal principles of reliability and consistency in financial reporting. As a result, 60 percent of participants said they are «reserved/ very reserved» about the lack of in-advance publication of accounting reports of listed companies according to IFRS. The issue of implementing IFRS in accounting reports continues, then, to be an especially sensitive one for Greek professionals and undoubtedly the handling of this issue by listed firms will be one of the main criteria in investors’ decision-making in the near as well as distant future. In the efforts to improve financial information by listed companies, very crucial, if not the most crucial, is the role of the Investor Relations Officer (IRO). More than two-thirds (68 percent) answered they consider the IRO’s contribution to be «important/very important» in enhancing financial reporting. Another important factor for improving information flow are visits by institutional investors and analysts to listed companies, which 80 percent say contribute very much to better reporting. This means that companies are asked to be even more open and willing to organize visits by institutionals and analysts, not only at their headquarters but also at their main production facilities, increasing this way the professionals’ grasp of the firms’ real assets, abilities and realistic prospects. Information channels Of all the means of communication and disseminating information on listed companies to the investing community, the personal visit is considered the most important and desirable. Next on the market professionals’ list is the website and the conference call. This underscores that beyond the personal visit, listed companies have to systematically use all other forms of communication. Group visits and presentations to market professionals follow in preference. E-mail and the Internet emerge as the most widely used ways for companies to spread information to professionals. Of course, traditional mail and fax maintain their significance as information tools, but seem to be gradually losing their importance due to their heavier cost for listed enterprises and the increasing adoption of new technologies. Finally, the financial director is the most important communication source for investors and analysts. He is followed by the IRO, the general director and the chairman/CEO. By contrast, the role of the public relations officer seems to have moderate or small significance, although he/she continues in several cases to double as an IRO. This survey by Novus Finance and VRS was conducted in the last quarter of 2004 through a special questionnaire given to about 40 Greek capital market professionals, mainly institutional investors and analysts.
