FSA must devise framework to facilitate long-term growth, appropriate information disclosure

Editorial

12:21 JST, March 1, 2022

There have been moves to urge companies to correct the negative effects of pursuing short-term profits alone for the sake of shareholders. As important as such moves are, the necessity of information disclosure also must not be forgotten.

It is vital to explore concrete measures to achieve both future growth and appropriate information disclosure.

An expert panel of the Financial Services Agency has begun discussions as part of a review of rules under which listed companies on stock exchanges are required to disclose their corporate performances quarterly. The expert panel intends to compile a report on the issue this spring.

The panel was convened following Prime Minister Fumio Kishida’s pledge to review the compulsory quarterly company disclosures in a policy speech at the Diet in October last year. Kishida said that management from a medium- to long-term perspective is important to realize a “virtuous cycle of growth and distribution” through such measures as wage increases.

It is important to correct excessive “shareholders capitalism,” which prioritizes dividends over wage increases, and it is understandable to ask companies to make appropriate investments over the long term.

However, it is questionable whether compulsory quarterly company disclosures can be clearly said to be hindering the medium- to long-term growth of companies. At the first meeting of the expert panel, the majority of the members reportedly were of the opinion that the system of the compulsory quarterly company disclosures should be retained.

In order to maintain a healthy market, it is essential to quickly provide individual investors and others with the information they need to make investment decisions. The benefits of enhancing management transparency and monitoring business progress are significant. The position of continuing compulsory quarterly company disclosures is appropriate.

In 2003, stock exchange rules were established requiring listed companies to disclose their quarterly financial results in addition to their full-year and interim results.

Furthermore, based on lessons learned from the Livedoor accounting fraud in 2006, the Financial Instruments and Exchange Law made the disclosures of quarterly reports mandatory in 2008, a move that was partly aimed at preventing wrongdoing.

Rules regarding quarterly disclosures have been reviewed overseas in the past, with Britain, Germany and France abolishing their legal obligations in this regard. However, many companies continue to disclose information quarterly. In the United States, former President Donald Trump said he would consider abolishing the rules, but discussions have since come to a halt.

Competition among stock exchanges around the world is fierce. If Japan’s stance on information disclosure is perceived as a setback, there are concerns that the rules could make it harder to attract funds.

On the other hand, many companies complain about the burden of producing two types of reports in different formats: quarterly financial briefings for stock exchanges and quarterly reports to be submitted to local financial bureaus. It is necessary to improve the efficiency of administrative work by, for example, standardizing the content of briefings and reports as much as possible.

Decarbonization efforts and investment in human resources are also important for medium- to long-term growth, and companies are also expected to increase the dissemination of information on such issues. It is hoped that deeper discussions will be held on appropriate methods of information disclosure that can reduce the burden on companies.

— The original Japanese article appeared in The Yomiuri Shimbun on March 1, 2022.