Analysts Claim Companies Hide Behind SEC Disclosure Law

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Byline: Lynn Strongin Dodds

Last week marked the first anniversary of Regulation Fair Disclosure (FD), the new law passed by the Securities and Exchange Commission to level the information playing field between individual and institutional investors. While corporations and individual investors laud the rule as a success, analysts on both the buyside and sellside believe that the quality and the quantity of information have suffered, according to recent surveys.

Regulation FD requires public companies to disclose "material information" that may influence investment decisions to all types of investors and not just the chosen few analysts. A recent report by PricewaterhouseCoopers shows that nearly 90% of the leaders from 201 publicly listed companies surveyed believed Regulation FD should be continued. However, 68% said the SEC should issue specific guidelines as to what information is material to companies and requires disclosure.

The Association for Investment Management and Research is also calling for a better definition of the concept of "material information". Its latest survey on the impact of Regulation FD reveals that analysts are concerned that information which is not disclosed or receives cursory treatment in conference calls could be material to an investor's investment decision.

More than half of the 303 financial analysts and portfolio managers it canvassed believe the rule has given companies an excuse to provide less information. About 54% felt companies offered less guidance on earnings. Around 53% thought there was not enough news about forward-looking information, with 14% believing the situation had improved. Moreover, over 40% said companies were less forthcoming about their internal operations, costs and pricing and sales volumes. …