QUARTERLY REPORTING IN SINGAPORE: ITS IMPACT ON THE MARKET AND THE ANALYSTS

Abstract

Singapore implemented mandatory quarterly reporting in 2003 for SGX-listed firms whose market capitalization on 31 March 2003 exceeds S$75 million. The implementation of mandatory quarterly reporting in Singapore provides an opportunity to investigate the effects of quarterly reporting in the local context. If quarterly reports contain value relevant information and pre-empt annual reports, following the Efficient Market Hypothesis (EMH), which states that the prices of traded assets reflect all known information, the information would have been impounded into the price, and one would expect both trading volume and return volatility during the 4th quarter earnings announcement week to reduce: lower than under the semiannual reporting environment. With a larger amount of timelier information made available through quarterly reports, analyst annual earnings forecasts are also expected to improve. This study investigates the usefulness of mandatory quarterly financial reporting in Singapore since its inception in 2003. In this study, the extent that mandatory quarterly reporting influences the Singapore market is measured in terms of abnormal trading volume and abnormal return volatility, and the analysts’ forecasting abilities, in terms of annual earnings absolute consensus forecast errors and forecast dispersion. We find no substantial evidence that indicates significant difference in (abnormal) trading volume and return volatility surrounding the 4th quarter earnings announcements before and after the implementation of mandatory quarterly reporting. Similarly, there is also no concrete evidence of improvements in the accuracy of analyst annual earnings forecasts with the adoption of quarterly reporting. An interpretation of these results is that quarterly reporting is no different from semiannual reporting in the sense that semiannual reports provide information timely enough such that investors and analysts do not value quarterly reports, except plausibly for those reports released by the smaller firms, which usually have much lesser information available in the market. Perhaps increasing the frequency of financial reporting alone is not sufficient to alter the information environment; changes in other areas such as legal structure and corporate governance may be required on top of quarterly reporting.