The great reporting debate
A PROPOSAL by the US Securities and Exchange Commission (SEC) to allow listed companies to opt out of quarterly earnings reporting has reignited a long-running debate in capital markets.
Some of the key conversations surrounding the topic include whether frequent financial disclosures promote transparency, or if they encourage companies to focus excessively on short-term results.
The SEC’s proposal, unveiled last month, would allow US-listed companies to report financial results every six months instead of every quarter, ending a disclosure regime that has been in place for more than five decades.
Proponents argue the move would reduce compliance costs and allow management to focus on long-term value creation, while critics warn it could weaken transparency and widen information gaps between institutional and retail investors.
The development raises an inevitable question closer to home: should Bursa Malaysia follow suit?
For now, Bursa Malaysia appears firmly committed to maintaining quarterly reporting requirements.
“Bursa Malaysia’s requirement for quarterly reporting reflects a long-standing position shaped through periodic review and ongoing market engagement,” the exchange says in an email statement to StarBiz7.
It notes that quarterly reporting was introduced in 1999 following the Asian financial crisis to strengthen transparency and restore investor confidence.
“Taking into account international developments, stakeholder feedback and observed market behaviour, Bursa Malaysia continues to view quarterly reporting as important in supporting transparency, timely price discovery and informed decision-making.
“Quarterly results remain a key information event in the Main and ACE Markets, typically accompanied by increased trading activity as new information is incorporated into prices.
“Together with continuous disclosure obligations, this helps to reduce information gaps and support orderly markets – particularly during periods of uncertainty.”
The exchange adds that it will continue to monitor global developments and market practices before considering any future adjustments.
The views from corporate Malaysia largely echo Bursa’s stance.
Limited practical benefits
Westports Holdings Bhd executive chairman Datuk Ruben Emir Gnanalingam sees little practical benefit in reducing reporting frequency.
“Reporting cycles do not distract us from long-term strategy and execution,” he tells StarBiz7.
He also dismisses concerns over reporting costs.
“The costs are negligible.”
He also does not believe quarterly reporting encourages management to chase short-term earnings.
“We have felt no such pressure. All our investors understand we are a long term focused company.”
On whether semi-annual reporting would improve operational flexibility, Ruben says: “Our operational flexibility would not be improved in any significant way. We update investors on operational issues anyway.”
More importantly, he cautions against longer gaps between disclosures.
“The longer the interval, the less likely access to information will be equal.”
Unitrade Industries Bhd group chief financial officer Stephen Koh is similarly unconvinced that quarterly reporting imposes a burden on companies.
“Quarterly reporting helps management to be on track during the financial year,” he says.
He adds that the “cost is irrelevant to its benefits”.
While acknowledging that less frequent reporting could potentially make the market more attractive to some listing candidates, Koh stresses that quality should take precedence over quantity.
“We need quality initial public offerings and not quantity.”
He also says Unitrade would “definitely” continue providing updates even if quarterly reporting became optional.
For investors, however, the debate goes beyond corporate convenience.
“Potentially yes, especially in Malaysia where the market has a relatively high retail investor presence and uneven analyst coverage across companies,” he says when asked whether reducing reporting frequency would weaken transparency.
“Reducing frequency may disproportionately affect mid to small cap companies where alternative information channels are limited.”
Important reality check
According to Nixon, quarterly reports are an important reality check for investors.
“Quarterly earnings are typically important because they validate whether management is meeting expectations, provide updates on margins, cash flow, debt, and demand conditions, and influence valuation assumptions and forward earnings forecasts.”
He warns that semiannual reporting could widen the information divide between sophisticated investors and retail shareholders.
“Institutional investors generally have better access to management meetings, stronger research resources, alternative data and industry networks.
“Retail investors rely more on formal public disclosures.”
As a result, fewer mandatory disclosures could reduce market fairness and investor confidence.
Nixon also notes that longer reporting intervals may delay the discovery of financial problems.
“Less frequent updates can reduce forecasting accuracy and delay recognition of deteriorating fundamentals, balance sheet stress, earnings inflection points.”
“Reducing reporting frequency would likely moderately weaken transparency – the longer gaps between updates may reduce the immediacy of information, especially during periods of economic volatility,” he says.
He adds that quarterly reports remain important tools for tracking earnings momentum and management execution.
“Quarterly earnings are important, but not the sole determinant. They help track earnings momentum, operational trends, and management execution.”
Like Nixon, he believes retail investors could be disadvantaged under a semi-annual reporting regime.
“There is a risk of increased information asymmetry as unlike institutional investors, retail investors have limited access to management, research, and data.”
The governance implications are also difficult to ignore.
“Less frequent mandatory reporting could create room for weaker governance practices to go unnoticed longer, especially among small- and mid-cap companies with limited analyst coverage,” Danny says.
The SEC’s proposal is rooted partly in the belief that quarterly reporting encourages corporate short-termism, a concern previously raised by business leaders including JPMorgan Chase & Co chief executive officer Jamie Dimon and veteran investor Warren Buffett.
Supporters argue that management teams spend too much time managing quarterly expectations at the expense of longer-term investments.
Yet, Malaysian market participants appear unconvinced that the same problem exists locally.
Ruben notes that quarterly reporting has not altered Westports’ long-term approach, while Koh believes the discipline of regular reporting actually helps management stay focused on annual targets.
Perhaps the more relevant question is whether Malaysia’s market structure resembles that of the United States.
The United States enjoys deep institutional investor participation, extensive analyst coverage and widespread availability of alternative data.
Malaysia, by contrast, remains a market where many smaller companies receive little analyst attention and retail investors continue to rely heavily on quarterly announcements for updates.
That distinction may explain why Bursa Malaysia remains reluctant to follow the US down the semi-annual reporting path.
For now, the consensus among regulators, corporates and fund managers appears clear: while quarterly reporting may not be perfect, the benefits of transparency, accountability and investor protection continue to outweigh concerns about compliance costs and short-termism.
As global regulators experiment with lighter disclosure requirements, Malaysia’s market may ultimately decide that more information – not less – remains the better option.