Review of Corporate Performance Disclosure: Don’t Put Damper on Promotion of Investment

Prompt disclosure of corporate performance by listed companies can be said to be the most important condition for attracting investment in the stock market. It is hoped that companies will strive not to backtrack on the issue of information disclosure.

With the enactment of the revised Financial Instruments and Exchange Law during the current Diet session, quarterly corporate reports — which listed companies are required to submit to Local Finance Bureaus of the Finance Ministry following the first and third quarters — will be abolished starting in April.

Currently, listed companies every three months make public quarterly reports required by the Financial Instruments and Exchange Law and earning summaries required by stock exchanges. Of these, the first and third quarterly reports required under the law will be consolidated into a single earnings summary.

The second quarterly reports will be maintained as semiannual reports, and companies will continue to compile securities reports, which summarize business conditions for the year.

Although quarterly reports and earning summaries differ in format, much of the content overlaps, and companies have complained about having to do the same work twice. The law revision is expected to lighten this burden.

It is hoped, too, that firms will become more proactive in developing and investing in technologies in new fields from a medium-to-long-term perspective.

However, a situation must be avoided in which companies neglect to disclose information following the revision.

Prime Minister Fumio Kishida has been focusing on policies to encourage investment in stocks and other securities with the aim of boosting personal asset-building. From January, Kishida’s administration plans to significantly expand the scope of the Nippon Individual Savings Account (NISA) program, in which incomes from small investments are tax-exempt.

In the stock market, the Nikkei stock average is at its highest level in 33 years on the back of widespread buying by foreign investors due to strong corporate earnings and a perception that Japanese stocks are undervalued.

Under such circumstances, if corporate information disclosure was seen to be moving backward, it could pour cold water on the positive investment trend.

The Tokyo Stock Exchange will revise its rules in line with the review, requiring companies to disclose in their earning summaries income by business sector and cash flow, which currently are detailed in quarterly reports.

Investors have been issuing strong requests for prompt disclosure of both items. It also will be important to enhance the dissemination of information on such topics as decarbonization and investment in human resources. Companies must improve the quality of their information disclosure, taking investors’ needs into account.

In addition to quarterly disclosure of business results, it is also vital to enhance timely disclosure whenever an event occurs that has a significant impact on business operations.

This would include, for example, supply chain disruptions due to disasters or infectious diseases, and major changes in the earnings environment caused by deteriorating international situations. Proactively disseminating information to investors and gaining their trust should lead to an increase in corporate value.

(From The Yomiuri Shimbun, Nov. 30, 2023)