NCPA - National Center for Policy Analysis

Companies are Giving Shareholders More Information

February 28, 2002

Corporate executives aren't blind to the handwriting on the wall: investors want to know what's really going on behind the balance sheets. They want the financial details. Financial reporting that is technically correct but does not clearly reflect a company's operating health is no longer acceptable.

And companies are responding. The system of checks and balances is being strengthened. But experts warn that providing more corporate information may have pitfalls for the unwary.

  • Dumping too much information on shareholders risks muddying the waters -- overwhelming the investor with minutia may obscure the really important stuff.
  • The timing of disclosures also matters -- with delayed announcements contributing to shareholder unease.

For example, Tyco only recently disclosed that it made hundreds of acquisitions in recent years that were never even announced. The company argued those deals were too small individually to be "material." But its investors clearly thought otherwise.

  • Most investment professionals agree that greater transparency on the part of corporations will result in less uncertainty and be a positive for the stock markets -- but that is over the long run.
  • Short term, however, the result is likely to be more jitters and uncertainty, experts predict, because important information might be buried.

If investors remain uneasy about the new, most likely unfavorable, flood of information soon to be released by some companies, it could undermine confidence and slow or delay any economic recovery.

Source: Amy Barrett, "Slammed!", Business Week, March 4, 2002.


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