ECONOMY

Unfair disclosure practices turn off investors, hurt stock market

The Athens Stock Exchange (ASE) was able to fulfill a lifetime’s dream and join the club of the world’s developed markets on May 31, 2001 mainly thanks to Greece’s successful entry into the eurozone at the beginning of 2001. However, the bourse’s upgrade did little to restore investors’ shaken trust in the institution. At the beginning of 2002, all interested parties will have to take steps in the direction of equitable dissemination of information in a bid to stimulate the investing public’s interest in local equity investments. It has repeatedly been observed, both before and after the bourse’s upgrade into a developed market, that important corporate announcements and the publication of quarterly income statements have failed to cause significant movements in stock returns. In many cases, it is noticeable that stocks have reacted prior to these announcements, usually a week beforehand. This is indicative either of an information leak or the existence of additional information which has led some market participants to assess the company’s profit-and-loss statement correctly. Indeed, top managements of a number of listed companies have chosen to provide important information about financial figures and/or corporate actions, such as an acquisition, to institutional investors or/and analysts before disseminating it to the general investment public. This way, retail investors are left with little or no upside potential since they hear about it and react to the news following the share price’s adjustment to higher levels. In other cases, top management officials inform first the market maker of their stock, usually a stock exchange company which is a member of the Athens bourse, prior to informing the general public. The repeated cases of inequitable distribution of information has made many retail investors cry foul and complain of stock price manipulation. Some have even filed charges which have been dealt with, after a long time lag, by the competent authorities. This situation has undermined the average Greek investor’s trust in ASE and made him more reluctant to invest in local equities while paving the way for him to invest more money abroad. The physical introduction of the euro may even facilitate this process and deprive the Athens bourse of its main source of liquidity. Although it is obvious to all that Greek companies have made a lot of progress in the dissemination of information in the last couple of years, few observers seem to believe this progress is sufficient to bring the Athens bourse up to the levels of disclosure seen in other developed markets, particularly in the USA. This information deficit is augmented by the tendency of a number of local press reports to treat favorably company announcements or news which merit criticism and scrutiny and ignore and pay less attention to more important corporate news which may not impress or sell as much. Greek authorities have enacted legislation and put in place regulations to deal with problems related to fair disclosure practices and to penalize those who fail to obey them. However, penalties are generally considered very small compared to the vast sums of money which can be made and some investors complain that it is usually the followers and not the leaders of the alleged schemes which end up paying the price. Nevertheless, the government has tried to do more to ensure fair disclosure practices and greater transparency. It has already announced that Greek listed companies will be required to publish income statements not just under the Greek Generally Accepted Accounting Principles (GAAP) but also under IAS (International Accounting Standards) from 2003 instead of 2005 called for by the initial time framework. The adoption of IAS is considered essential for another reason. No foreign investment house pays serious attention to results published under Greek GAAP today. It is therefore not surprising that one of the reasons foreign houses and funds have not included promising Greek companies in their investment portfolios is the latter’s failure to publish results under IAS, which would ensure transparency and facilitate comparison with other international companies. It is in the best interest of corporations, the government and the local press to restore the average Greek investor’s confidence in local equity investments. If they fail, the price they will pay in the long run will be high, since more money will be channeled into foreign bourses, leaving Greek listed companies with no other option but to follow the same route sooner or later. Turkey must cut costs and raise revenues to service a domestic debt load that stood at 117,245 trillion lira (some $79 billion) in November and foreign debt of $118.848 billion.