Economics
Disclosure Requirements
Disclosure requirements refer to the regulations that mandate companies to provide accurate and transparent information about their financial performance, operations, and potential risks to investors and the public. These requirements aim to ensure that stakeholders have access to relevant and reliable information to make informed decisions about investing in or engaging with a company.
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9 Key excerpts on "Disclosure Requirements"
eBook - PDF- D. Mayes, L. Halme, A. Liuksila(Authors)
- 2001(Publication Date)
- Palgrave Macmillan(Publisher)
7 A Disclosure Regime Disclosure is a word without any accepted detailed meaning. Increasing trans- parency is very much in vogue at present. The IMF, for example, adopted the ‘Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles’ in September 1999. Buiter (1999) and Issing (1999) both espouse the cause of transparency for the European Central Bank, but with strongly conflicting views about what such transparency entails. The same applies to transparency in financial markets. Few would argue against it, as this would be taken to imply that they had something to hide but there is only limited agreement on what should be disclosed. There are no obvious answers as to what should be disclosed, although, of course, there are some simple requirements for making the disclosures useful and fair in competitive terms across banks. The obvious requirement for fairness is that there should be common rules that do not discriminate against any partic- ular class of banks. Indeed it is important to make sure that the requirements for banks are not so onerous compared to other financial institutions that business is driven outside the scope of the regulation designed to cover it – offshore, for example. The obvious requirements for usefulness are that the accounting con- ventions used should be both common to all reporting organisations and provide valuations that are comprehensible, comparable and meaningful. An independent check on quality would also seem to be appropriate as provided by independent auditors appointed by the shareholders or some other body independent of the management. Adequate assessment requires the disclosure of sufficient information about a bank to be able to determine the structure of its assets and liabilities and the risk- iness of that structure. However, it is insufficient merely to show account and balance sheet information because the assessor also needs to know how risks are managed.
- Ellie (Larelle) Chapple, Alex Wong, Richard Baumfield, Richard Copp, Robert Cunningham, Akshaya Kamalnath, Katherine Watson, Paul Harpur(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
This chapter explores these reporting requirements. First, we will look at some preliminary disclosure matters. CHAPTER 11 Disclosure 273 11.1 Why disclosure is required LEARNING OBJECTIVE 11.1 Discuss why and how information is publicly disclosed by companies. The broad aims of the disclosure provisions in the Corporations Act are twofold: 1. to ensure those who manage companies are accountable to those who own the company — as discussed in chapter 7 (on corporate governance and company management) in relation to agency theory, members may seek to limit opportunistic behaviour by management, and one way to do this is through disclosure and transparency; and 2. to balance the protection of investors with the maintenance of an efficient and effective capital market. An efficient and effective market exists when prices of securities in markets reflect all publicly available information. Economists refer to this idea as the efficient market hypothesis. Generally, entities will not always publish sufficient information to ensure an efficient market, so the government imposes regulation to ensure disclosure. The Corporations Act seeks to ensure markets have access to information relevant to the value of shares (and other securities) by: • requiring those offering shares or debentures to investors to disclose information about the company, its operations and prospects, and • seeking to ensure that companies update publicly available information so that it is relevant, accurate and timely. In theory, the more information investors have, the better their decisions are about whether or not to invest in a particular company, or whether or not to sell or hold their existing shares. The efficient market hypothesis suggests that when the market is fully informed then as a whole the market makes ‘the right decision’ and the security’s market value will be ‘correct’. Current and future investors may rely on a variety of sources of information in making investment decisions.
- OECD(Author)
- 2018(Publication Date)
- OECD(Publisher)
1 . On the other hand, voluntary disclosure regulation is often stipulated in corporate governance code that adopts “comply or explain” approach. As pointed out in the G20/OECD Principles, companies often make voluntary disclosure that goes beyond minimum Disclosure Requirements in response to market demand.The key objective of disclosure regulations is to provide shareholders and potential investors with information necessary for their decision making. Shareholders and potential investors require access to regular, reliable and comparable information in sufficient detail for them to assess the stewardship of management, and make informed decisions about the valuation, ownership and voting of shares. Insufficient or unclear information may hamper the ability of the markets to function, increase the cost of capital and result in a poor allocation of resources.It has been pointed out that policy makers tend to make extensive use of disclosure-based techniques in the area of financial market regulation.2 Some may believe that securities regulation is motivated by the assumption that more information is better than less3 . Another reason may be that disclosure is a less burdensome regulatory tool, in the sense that extending its scope or content does not usually entail any direct government expenditure. This tendency of policy makers explains the need for adopting flexibility and proportionality mechanisms in disclosure regulations so as not to place an undue burden on companies.Issues and trends
The OECD’s survey has found that the United States and some European stock markets today have between 30 to 40 percent fewer publicly traded companies than they had at the turn of the century4 . This decline is to a large part explained by a structural decline in the number of initial public offerings. In particular, as pointed out in the OECD Equity Markets Review: Asia 2017[4] , IPOs by smaller companies (below USD 50 million) have declined in the European Union and the United States during the last ten years.5
eBook - PDF- Rüdiger Veil(Author)
- 2022(Publication Date)
- Hart Publishing(Publisher)
The necessity for a mandatory system of disclosure can also be examined from an economic point of view. Theoretical studies on capital markets and economic models are of essential importance for the regulation of capital markets and are regarded as the justification for the disclosure philosophy in US capital markets law. 5 Therefore, the following short introduc-tion into the underlying economic principles is necessary for understanding the disclosure system in European capital markets law. II. Transparency and Capital Market Efficiency The statements of Louis D� Brandeis , Louis Loss and Joel Seligman in the previous paragraphs emphasise the idea of mandatory disclosure being an instrument to manage a conflict of interests. But, furthermore, mandatory disclosure is also seen as essential for investors to make optimal investment decisions. In economics the connection between disclosure and its influence on the behaviour of investors on the one hand and capital markets on the other hand is examined under the benchmark of efficiency. In general, one distinguishes three different types of efficiency: allocational, institutional and operational. 6 2 3 4 262 Hendrik Brinckmann 7 L. Enriques and S. Gilotta, in: Moloney and Ferran (eds.), Financial Regulation , 513; T. Möllers, 208 AcP (2008), 1, 7; P. Mülbert,177 ZHR (2013), 160, 172. 8 G. Akerlof, 84 Q. J. Econ. (1970), 488 ff. 9 See R. Veil § 2 para. 26. 10 Cf. for this concept also H. Fleischer, Informationsasymmetrie im Vertragsrecht , 121 ff.; N. Moloney, EU Securities and Financial Markets Regulation , 56, argues with the ‘Market for Lemons’ model in favour of mandatory disclosure in the primary market. 11 E. Fama, 25 J. Fin. (1970), 383 ff. 12 W. Beaver, Financial Reporting , 127, 134–135. Allocational Efficiency Allocational efficiency describes the main function of the capital markets as allocating scarce investable financial resources to investment opportunities.
eBook - ePubCapital Requirements, Disclosure, and Supervision in the European Insurance Industry
New Challenges towards Solvency II
- M. Starita, I. Malafronte(Authors)
- 2015(Publication Date)
- Palgrave Macmillan(Publisher)
Within the three-pillar structure of Solvency II, market discipline and disclosure represent the main content of the third pillar, in which insurers are required to disclose financial information by reporting to their supervisors (s upervisory reporting) and the public (public disclosure). However, this regulatory framework provides no formal definition when discussing these topics. Moreover, to begin an extensive and in-depth discussion on actual disclosure by companies, it is necessary to clarify what disclosure refers to and what it does not; thus, what are its boundaries, what is included and excluded from it, and what is the extent to which it differs or overlaps with certain related topics? The first step in achieving this goal of identifying a comprehensive definition of disclosure is to search a dictionary for this term and related topics: transparency, communication, market discipline, and reporting. 2 Figure 6.1 reports a summary of the definitions found, which are analysed, compared, and discussed below. A definition of disclosure, identified by consulting an English dictionary, is ‘the action of making new or secret information known’ and ‘a fact, especially a secret, that is made known’. In line with this statement, Lanam (2008) defines disclosure as ‘to reveal to knowledge, to free from secrecy or ignorance, or make known’, as reported on Black’s Law Dictionary. Thus, disclosure refers to two key elements: (i) the action or the process implemented, meaning the behaviour that allows something still unknown, because it is new or secret, to be made known; (ii) the fact, which refers to a specific information or event, secret or new, that is revealed, becoming something that is disclosed
- Lee H. Radebaugh, Sidney J. Gray, Ervin L. Black(Authors)
- 2015(Publication Date)
- Wiley(Publisher)
The pace at which regulation has accelerated since the early 1970s is such that it is sometimes suggested that only a time lag separates a request from its eventual dec- laration as a required disclosure. Such a view may vastly oversimplify the technical and political process through which standards are established—a process in which many companies directly or indirectly participate. But the ultimate result, albeit at times postponed or slowed down, has been increasing accounting and Disclosure Requirements. The acceleration in the demand for information for investment purposes appears to be unsustainable and hence must eventually decline. However, the increasing internationalization of financial markets and share ownership, com- 126 Chapter Six International Transparency and Disclosure bined with a concurrent growth in awareness of the considerable diversity of accounting principles and practices in different countries, has fueled the demand for additional information disclosures to increase both the quality and compara- bility of MNE reports. Apart from the investor group, there is a growing belief among other groups—such as governments and trade unions—that both an increased availabil- ity and an improved quality of information are essential. It can be argued that many of these demands are general, vague, and imprecise. However, as the demand has grown, so too has its precision at both the national and international levels. Inter- national organizations such as the UN, OECD, European Union, and IASB are now issuing more detailed requirements and recommendations. At a time when some may have thought that for MNEs headquartered in coun- tries with well-developed securities markets, the demand for information might have eased, there has been a growing and articulated demand from a range of non- traditional information users for more information, some of it already available to and directed at investors—others demanded by emerging user groups.
eBook - PDFFinancial Accounting Theory and Analysis
Text and Cases
- Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
Above all, it must be remembered that even the soundest recommendation from the most trust- worthy analyst may not be a good choice. That’s one reason investors should never rely solely on an analyst’s recommendation when buying or selling a stock. Before acting, investors should determine whether the decision fits with their goals, time horizon, and tolerance for risk. In other words, they should know what they are buying or selling – and why. News Articles About the Company In addition to the previous types of information, stockholders and other interested parties may review news releases pertaining to companies. This type of information includes addition or cancelation of products, changes in officers, stock issues and buybacks, and many other types of information. Securities and Exchange Commission Disclosure Requirements Many of the disclosure techniques and accounting conventions discussed in the preceding sec- tions are the result of evolving US GAAP and consensus. However, since the mid-1930s, the US government has also been involved in standard-setting and disclosure issues. The Securities and Exchange Commission (SEC) is the regulatory agency responsible for administering federal securities laws. The purpose of these laws is to protect investors and to attempt to ensure that investors have all relevant information about companies that issue publicly traded securities. The SEC is also responsible for enforcing all the laws passed by Congress that affect the public trading of securities. Among these laws are • The Securities Act of 1933 • The Securities Exchange Act of 1934 • The Foreign Corrupt Practices Act of 1977 • The Sarbanes–Oxley Act of 2002 646 FINANCIAL REPORTING Disclosure Requirements AND ETHICAL RESPONSIBILITIES These acts stress the need to provide prospective investors with full and fair disclosure of the activities of a company offering and selling securities to the public.
eBook - PDF- Nicholas L. Georgakopoulos(Author)
- 2017(Publication Date)
- Cambridge University Press(Publisher)
part ii Disclosure Why Subsidize Informed Traders? 9 Introduction This second part of the book seeks to appraise at a general level the disclosure provisions of securities laws, which require lengthy and audited disclosure on the issuance of a security and annually, supplemented by summary quarterly disclosures. 1 The puzzle that these rules present is that (to a significant extent) they impose disclosure in order to achieve accurate prices for securities. Theory, however, has been ambivalent about this regulatory mission. The chapters in this part explain that disclosure rules are justified in ensuring the accuracy of prices and that firms would not provide this service sufficiently without regulation. This realization is instrumental in seeing how disclosure rules facilitate the virtuous cycle that securities law promotes, the cycle from lower cost of trading to greater liquidity and more accurate prices, which, in turn, lowers the cost of trading. Disclosure rules do so by ensuring the accuracy of prices. Chapter 10 offers an overview of the theories that justify disclosure rules. These traditional theories, while they justify some disclosure rules, fail to explain those that promote accurate prices. Despite the theory behind the capital asset pricing model (CAPM) 2 and the evidence of efficiency, more recent theory and evidence suggest that false prices (due to irrational trading) are plausible. Disclosure rules make sense if we reenvision them as subsidies to rational informed traders. This subsidy is initially justified to ensure that the traders and the markets are not overcome by irrationalities. Chapter 11 argues that this subsidy must come from the legal system because corporations and shareholders themselves would underprovide disclosure. The price accuracy that results from disclosure is to the advantage of short-term uninformed shareholders.
No longer available |Learn more- (Author)
- 2012(Publication Date)
Explicit disclosure During the review of regulations and listing requirements of stock exchanges, it was observed that in some instances, for some disclosure items, there was an obvious and explicit requirement to disclose or report a particular item. An example of an explicit disclosure rule is provided above (section D.1 mandatory implementation). Implicit disclosure In contrast, a disclosure requirement can be regarded as implicit when it needs to be considered together with other regulation or general principles to determine whether or not a particular issue is subject to mandatory disclosure. There are two main types of implicit disclosure found among the regulations of the 21 countries in this study: a) Implicit Disclosure I: the disclosure requirement could be determined from the consideration of two separate articles within the same regulation or from different regulations . For example, one article states that the annual report shall be published, but without specifying the specific corporate governance subjects to be included in the report. Meanwhile, another provision lists the detailed items that shall be embodied in the annual report. Thus, the Disclosure Requirements regarding detailed subjects can be identified by considering these two articles together. Another common example of this kind of implicit disclosure is when a provision sets forth “Information regarding … [preceding or following provisions] shall be reported to the public”. In this case, the disclosure obligation becomes applicable to all the subjects covered in those provisions. b) Implicit Disclosure II: the disclosure requirement could be determined from the consideration of an article and a general principle. Because of the disclosure obligation incurred from the “mandatory comply or explain” principle, the ordinary CG regulation in the code implies that listed companies shall disclose the actual CG practice in the same regard.
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