Too Much Information (TMI): corporate version

February 12, 2015 § Leave a comment

For the corporate sector, a cost-benefit analysis of quarterly reporting is inconclusive. There is evidence that a high frequency of reporting lowers the cost of capital but this is offset by the drain on management time. National Grid estimates this to be a month a year.
The alternative to the US requirement for standardised quarterly financial statements is for companies to report significant news. It seems counter-intuitive to reduce news flow in the information age, but is less formulaic and less time consuming, particularly for long-cycle companies such as National Grid. It is a different matter for companies such as Apple in fast-moving, seasonal sectors to give quarterly updates anyway. So allowing listed companies in the UK and Europe to have the option to make quarterly statements seems appropriate. Investors will make their wishes clear on a case-by-case basis.

From here. My point is to the strapline of that article: “Management quality not quarterly reporting requirements drives value-creating behaviour”. If that is really true, then companies shouldn’t care if there are greater costs to regulatory processes such as quarterly reporting. The “benefits” of such cost are not merely in terms of information dissipated but also the access to capital. As for the matter of incentivising executives to look at long term results, the author himself points out that it is up to the board of directors to ensure that.

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