Market Scramble: Skimpy earnings reports marring transparency in Tokyo
Lighter disclosure requirements leave frustrated investors asking for more
JO KAWAKAMI, Nikkei staff writer
TOKYO -- Investors in Japanese stocks have been perplexed by a change in reporting requirements for listed companies that has resulted in abbreviated earnings reports and fewer earnings forecasts from securities analysts.
The Nikkei Stock Average on Friday rebounded for the first time in five sessions, gaining 0.56% to 19,943. Prospects that the U.S. will continue to raise interest rates weakened the yen significantly, buoying exporter shares.
But the market's mood is not a festive one. "Given the lackluster reactions of overseas investors, we should probably watch out for downside risks at the moment," warned Satoshi Kashihara, head of electronic trading sales at Nomura Securities.
Overseas, key events like the British general election and the U.S. rate hike have passed. But Japanese shares are lagging behind U.S. and European ones because of a dearth of market-moving news at home. The lack of domestic news makes Japaneses shares more susceptible to such external factors.
In addition to all this, there is the drop in material information about listed companies. Starting with the year ended this past March, the Tokyo Stock Exchange allowed companies to streamline earnings reports in an effort to ease their reporting burden.
Toyota Motor's fiscal 2016 report -- released May 10 -- was 21 pages, compared with 30 the year before. Some information omitted from the report can be found in supplementary documents released at the same time. But such key data as overseas sales, which sheds light on trends in the North American market, was nowhere to be found.
Information left out of the simplified data will be included in the securities report due out late this month, said a Toyota public relations representative.
But securities analysts complain that the simplified report should have been released earlier -- such as before the Golden Week holidays that began at the end of April.
It is not clear how much of an impact the truncated report had, but Toyota shares have fallen 5% from just before the earnings were released, while the Nikkei index was little changed over the same period.
Many companies skip overseas sales, dividend payouts and other information in streamlined reports. The Tokyo bourse is looking to get such information by asking the companies directly, says a TSE official. Yet a drastic decrease in corporate information could undermine investors' ability to make sound decisions.
To make matters worse, the practice of quarterly reporting itself may come under question. The Japanese government's new growth strategy, announced in June, says the requirement of quarterly earnings disclosures will be reviewed.
Corporate leaders seem to be of the mind that quarterly disclosures take a toll on medium- to long-term shareholding. Sadayuki Sakakibara, the chairman of the Japan Business Federation, the country's top business lobby, suggested in January that the quarterly reporting practice be re-examined, when attending a meeting on the new growth strategy.
Meanwhile, investors hold the opposite view. "Quarterly earnings reports are essential to gauging mid- to long-term growth via fixed-point observation," said Fumio Matsumoto, senior fund manager at Dalton Capital Japan.
According to the growth strategy, a conclusion will be reached on the matter around next spring. The Financial Services Agency and other pertinent entities likely will begin full-blown discussions in the second half of this year.
Investors and market observers will have to see whether the reduced information ends up damaging the market's price formation function.