Quarterly reporting plan draws criticism
The Hong Kong stock exchange's plan to require all main-board companies to report their results every three months, rather than every half year, has fuelled fears it will encourage firms to chase short-term profits.
'Many analysts and investors have their eye on the bottom line,' said Hong Kong General Chamber of Commerce chief economist David O'Rear. 'If companies need to report every three months, they face pressure to chase short-term profit and not invest for the longer term.'
While some agree the exchange's plan will bring the city in line with international practices, there is growing concern it will lead to more market speculation and increase the regulatory burden on companies.
The quarterly reporting plan, contained in a HKEx consultation paper, envisages about 170 companies with a market capitalisation over HK$10 billion moving to the new system from September next year.
About 800 smaller firms would be allowed to follow the new rules in September 2010, giving them more time to adjust to the system. The mainland, Singapore, the European Union and the United States have adopted quarterly reporting.
Chamber of Hong Kong Listed Companies chief executive Mike Wong Ming-wai said he was concerned the move would make investors look at short-term performance, leading to more speculative trading.
Paul Chan Mo-po, council member and past president of the Hong Kong Institute of Directors, said companies should concentrate on business development rather than reporting results every three months.
'Half-yearly reporting has been the norm in Hong Kong for a long time and does not appear to have been a big problem,' Mr Chan said.
However, Stephen Cheung Yan-leung, chair professor of finance at City University of Hong Kong, supported quarterly reports, saying companies and investors needed to be educated not to chase short-term profit when the system is introduced.
'We are now almost the last advanced market to introduce quarterly reporting,' Mr Cheung said. 'The mainland market has had such a requirement for three years and Hong Kong has lagged.'
Hong Kong Institute of Directors deputy chairman Edward Chow Kwong-fai said the plan to allow smaller firms more time would create confusion in the market.
'It does not make sense,' Mr Chow said. 'Many companies listed on the Growth Enterprise Market are very small but they have adopted quarterly reporting already.'
