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Information: A Driving Force of the Capital Market
- By Kayode Ogunwale
- Published May 11th, 2010
- StockWorld
- Unrated
THE capital market, the world over, is information driven. The timely and accurate release of information by the quoted company is very essential in guiding investors in making investment decisions.
Perhaps that is why capital market regulation, among other things, places much emphasis on ensuring that quoted companies not just give information but are timely and correct with the information given. The correct and timely information the market requires from a quoted company usually serve as an indicator of how healthy the company is.
Timely release of results, whether interim or final, is important to players in the market. In other jurisdiction especially the developed market, companies don’t merely give information about how they have performed or what progress the companies are making, they have carried it further by giving performance forecast. Through this they tell investors what the turnover it is going to be, the profit before and after tax and what level of dividend the company would pay in the period forecast is referring to. The forecast could be for interim results or final results. That has been the norm. But the situation here is different. Companies operating on the Nigerian Stock Exchange (NSE) are not known for doing this. Even, there are some companies which failed to come out with their full year results for years with no serious sanctions against them from the regulators.
How NSE encourages companies to provide information
There are some measures put in place by NSE to make ensure that companies give information as and when due. This is part of post listing requirements of the exchange as the quoted companies are mandated to provide the market with information about their operations, but many do not comply. Post listing requirements of the NSE, among others require quoted companies in the market to forward quarterly accounts in addition to their annual accounts to the market. The companies in the second-tier securities Market (SSM) are expected to provide half yearly accounts, in addition to their annual accounts to the market.
Another way by which the exchange encourages timely release of information into the market is through the president’s merit award. The exchange in 1972 inaugurated the award in the course of discharging its mandate as a self regulatory organization (SRO).
It was meant to promote a culture of the excellence and good corporate governance among the listed companies. Since the award which is the highest any quoted company on the exchange can win was instituted about 35 years ago, over 300 companies have received the prestigious award and many of them severally. The award which is an annual event was conceived as follow-up to a series of guidelines meant to encourage greater disclosure of information to investors by the management of the quoted companies.
Essentially, the award is given to quoted companies which excel in the comprehensiveness of their annual reports and accounts; timely release of their result as well as orderly conduct of their annual general meeting. The thinking of the NSE is that as companies strive to meet the conditions for the award, it would promote and sustain confidence in the management of the companies and the nation’s capital market as a whole. This is so because, invariably, the market is made more transparent as companies seek to satisfy the conditions for selection as winners of the award. There is no gainsaying that companies will readily subject themselves to the rigours of qualifying for the award, seeing that ultimately their satisfaction of the elaborate selection will impact positively on the relationship between management and shareholders, prospective investors, consumer public, e. t. c.
Why companies fail to submit results
In apparent move to sustain their share prices in the stock market, some quoted companies are in habit of holding on to their poor results for longer period. Others that are not doing well at all would not send their results for some years and even refuse to hold their annual general meetings. This is done deliberately to mislead who would have to consider the present performance of a company before making a new investment decision. Once the result is not released on time, investors would be kept guessing as to what was happening to the company.
As at late last year not less than 25 per cent of listed companies on the floor of the NSE have been reported to be non-complaint in the declaration of its annual reports and accounts.
The number in the schedule of quoted firms and compliance with submission of annual reports to the stock exchange, from the schedule, out of the 209 listed companies, 53 have between year 2005 to the last quarter of year 2008 have not made their company results available to the market; indicating a figure of 25 per cent in the review period.
11 out of the 15 companies in the second tier securities of the NSE has in the past three years and above declined to obey one of the key post listing requirements by not submitting its results to the market since year 2005.
While the other three only declared second quarter of year 2008 and audited year 2007 respectively.
Stakeholders Reaction to the company forecast
According to a stockbroker, company forecast by listed companies on the Nigerian Stock exchange is one of the best things that have happened to the market.
He believes this would make the companies listed on the exchange to be more attractive if they manage to keep to the promise they give in the forecast. The development which he said is one of the corporate governance issues is very good for the market and the stocks on the exchange.
He spoke further that it would be one of the ways of bringing investors confidence back into the market. According to him, most of the forecast could be relied upon because before the companies come out with forecast they would have seen their ability to do so. To make companies take their forecast serious, market should be ready to punish them if they fail to meet their forecast.
Regulatory Efforts
The regulators are to ensure that investors and analyst have more insight into what the companies are doing or what to expect from them from time to time.
However, the Securities and Exchange Commission (Sec) had last month reminded public quoted companies and others who may not have been listed but have their financial year end as December 31st and whose securities are traded on the floor of the Nigerian stock exchange that they are due to publish their quarterly financial reports and file same with the commission on or before 30th April 2010.
Perhaps that is why capital market regulation, among other things, places much emphasis on ensuring that quoted companies not just give information but are timely and correct with the information given. The correct and timely information the market requires from a quoted company usually serve as an indicator of how healthy the company is.
Timely release of results, whether interim or final, is important to players in the market. In other jurisdiction especially the developed market, companies don’t merely give information about how they have performed or what progress the companies are making, they have carried it further by giving performance forecast. Through this they tell investors what the turnover it is going to be, the profit before and after tax and what level of dividend the company would pay in the period forecast is referring to. The forecast could be for interim results or final results. That has been the norm. But the situation here is different. Companies operating on the Nigerian Stock Exchange (NSE) are not known for doing this. Even, there are some companies which failed to come out with their full year results for years with no serious sanctions against them from the regulators.
How NSE encourages companies to provide information
There are some measures put in place by NSE to make ensure that companies give information as and when due. This is part of post listing requirements of the exchange as the quoted companies are mandated to provide the market with information about their operations, but many do not comply. Post listing requirements of the NSE, among others require quoted companies in the market to forward quarterly accounts in addition to their annual accounts to the market. The companies in the second-tier securities Market (SSM) are expected to provide half yearly accounts, in addition to their annual accounts to the market.
Another way by which the exchange encourages timely release of information into the market is through the president’s merit award. The exchange in 1972 inaugurated the award in the course of discharging its mandate as a self regulatory organization (SRO).
It was meant to promote a culture of the excellence and good corporate governance among the listed companies. Since the award which is the highest any quoted company on the exchange can win was instituted about 35 years ago, over 300 companies have received the prestigious award and many of them severally. The award which is an annual event was conceived as follow-up to a series of guidelines meant to encourage greater disclosure of information to investors by the management of the quoted companies.
Essentially, the award is given to quoted companies which excel in the comprehensiveness of their annual reports and accounts; timely release of their result as well as orderly conduct of their annual general meeting. The thinking of the NSE is that as companies strive to meet the conditions for the award, it would promote and sustain confidence in the management of the companies and the nation’s capital market as a whole. This is so because, invariably, the market is made more transparent as companies seek to satisfy the conditions for selection as winners of the award. There is no gainsaying that companies will readily subject themselves to the rigours of qualifying for the award, seeing that ultimately their satisfaction of the elaborate selection will impact positively on the relationship between management and shareholders, prospective investors, consumer public, e. t. c.
Why companies fail to submit results
In apparent move to sustain their share prices in the stock market, some quoted companies are in habit of holding on to their poor results for longer period. Others that are not doing well at all would not send their results for some years and even refuse to hold their annual general meetings. This is done deliberately to mislead who would have to consider the present performance of a company before making a new investment decision. Once the result is not released on time, investors would be kept guessing as to what was happening to the company.
As at late last year not less than 25 per cent of listed companies on the floor of the NSE have been reported to be non-complaint in the declaration of its annual reports and accounts.
The number in the schedule of quoted firms and compliance with submission of annual reports to the stock exchange, from the schedule, out of the 209 listed companies, 53 have between year 2005 to the last quarter of year 2008 have not made their company results available to the market; indicating a figure of 25 per cent in the review period.
11 out of the 15 companies in the second tier securities of the NSE has in the past three years and above declined to obey one of the key post listing requirements by not submitting its results to the market since year 2005.
While the other three only declared second quarter of year 2008 and audited year 2007 respectively.
Stakeholders Reaction to the company forecast
According to a stockbroker, company forecast by listed companies on the Nigerian Stock exchange is one of the best things that have happened to the market.
He believes this would make the companies listed on the exchange to be more attractive if they manage to keep to the promise they give in the forecast. The development which he said is one of the corporate governance issues is very good for the market and the stocks on the exchange.
He spoke further that it would be one of the ways of bringing investors confidence back into the market. According to him, most of the forecast could be relied upon because before the companies come out with forecast they would have seen their ability to do so. To make companies take their forecast serious, market should be ready to punish them if they fail to meet their forecast.
Regulatory Efforts
The regulators are to ensure that investors and analyst have more insight into what the companies are doing or what to expect from them from time to time.
However, the Securities and Exchange Commission (Sec) had last month reminded public quoted companies and others who may not have been listed but have their financial year end as December 31st and whose securities are traded on the floor of the Nigerian stock exchange that they are due to publish their quarterly financial reports and file same with the commission on or before 30th April 2010.
