“Public” not selective reporting - towards a fair & efficient listed company disclosure framework in Australia

Abstract

I investigate the extent and quality of information provided by listed companies through the Australian Securities Exchange (ASX), and the likelihood of additional private or selective disclosure. This is important because markets benefit greatly from public transparency and accountability. The global financial crisis has starkly reminded us that modern markets, real economies and people'’s lives are closely interconnected. Effective company disclosure in the public arena is especially vital in Australia, because the equity market operates with the highest retail investor participation in the world and a large proportion of savings is invested through compulsory superannuation.

Policy statements on company disclosure and insider trading regulation emphasise the importance of equal access to company information. They also acknowledge the links between equal access, investor confidence in the integrity of the market and efficiency outcomes. I therefore review the conceptual bases and empirical attributes of fairness and efficiency within markets, and consider the fairness and efficiency of the listed company disclosure framework in Australia.

I find the level of public transparency across the equity market is highly variable; access to listed company information in Australia is far from equal; and the content and quality of ASX disclosures are sometimes insufficient for well-informed decisions. Commentary from companies, regulators and investors reveals a large gap in expectations between listed companies and their stakeholders relating to disclosure practices and enforcement. Moreover, scholarly studies and original research suggest that a significant proportion of information required for informed decisions and broader managerial accountability is disseminated on a private, selective or tiered basis. I conclude that reforms to the disclosure framework are needed to enhance its fairness and long-term economic efficiency.

Specific reforms to the periodic disclosure, continuous disclosure and company briefing rules and processes are proposed. These reforms, if implemented, would enable more equitable access to information and reduce the scope for trading on inside or selectively disclosed information. In addition, general policy recommendations are outlined to promote a disclosure framework founded on a solid theoretical basis, with clearly identifiable goals, and a bold and effective regulatory and enforcement structure.