“Public” Not Selective Reporting - Towards A Fair & Efficient Listed Company Disclosure Framework in Australia Gill North A thesis submitted in accordance with the requirements for the award of the Degree of Doctor of Philosophy Faculty of Law University of New South Wales August 2010 THE UNIVERSITY OF NEW SOUTH WALES Thesis/Dissertation Sheet Surname or Family name: North First name: Gillian Other name/s: Lesley Abbreviation for degree as given in the University calendar: PhD 1730 School: Law Faculty: Law Title: “Public” Not Selective Reporting – Towards A Fair & Efficient Listed Company Disclosure Framework in Australia Abstract I investigate the extent and quality of information provided by listed companies through the Australian Securities Exchange (ASX), and the likelihood of additional private or selective disclosure. This is important because markets benefit greatly from public transparency and accountability. The global financial crisis has starkly reminded us that modern markets, real economies and people’s lives are closely interconnected. Effective company disclosure in the public arena is especially vital in Australia, because the equity market operates with the highest retail investor participation in the world and a large proportion of savings is invested through compulsory superannuation. Policy statements on company disclosure and insider trading regulation emphasise the importance of equal access to company information. They also acknowledge the links between equal access, investor confidence in the integrity of the market and efficiency outcomes. I therefore review the conceptual bases and empirical attributes of fairness and efficiency within markets, and consider the fairness and efficiency of the listed company disclosure framework in Australia. I find the level of public transparency across the equity market is highly variable; access to listed company information in Australia is far from equal; and the content and quality of ASX disclosures are sometimes insufficient for well-informed decisions. Commentary from companies, regulators and investors reveals a large gap in expectations between listed companies and their stakeholders relating to disclosure practices and enforcement. Moreover, scholarly studies and original research suggest that a significant proportion of information required for informed decisions and broader managerial accountability is disseminated on a private, selective or tiered basis. I conclude that reforms to the disclosure framework are needed to enhance its fairness and long-term economic efficiency. Specific reforms to the periodic disclosure, continuous disclosure and company briefing rules and processes are proposed. These reforms, if implemented, would enable more equitable access to information and reduce the scope for trading on inside or selectively disclosed information. In addition, general policy recommendations are outlined to promote a disclosure framework founded on a solid theoretical basis, with clearly identifiable goals, and a bold and effective regulatory and enforcement structure. Declaration relating to disposition of project thesis/dissertation I hereby grant to the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or in part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all property rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation. I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstracts International (this is applicable to doctoral theses only). …………………………………………………………… ……………………………………..……………… ……….……………………...…….… Signature Witness Date The University recognises that there may be exceptional circumstances requiring restrictions on copying or conditions on use. Requests for restriction for a period of up to 2 years must be made in writing. Requests for a longer period of restriction may be considered in exceptional circumstances and require the approval of the Dean of Graduate Research. FOR OFFICE USE ONLY Date of completion of requirements for Award: THIS SHEET IS TO BE GLUED TO THE INSIDE FRONT COVER OF THE THESIS ABSTRACT I investigate the extent and quality of information provided by listed companies through the Australian Securities Exchange (ASX), and the likelihood of additional private or selective disclosure. This is important because markets benefit greatly from public transparency and accountability. The global financial crisis has starkly reminded us that modern markets, real economies and people’s lives are closely interconnected. Effective company disclosure in the public arena is especially vital in Australia, because the equity market operates with the highest retail investor participation in the world and a large proportion of savings is invested through compulsory superannuation. Policy statements on company disclosure and insider trading regulation emphasise the importance of equal access to company information. They also acknowledge the links between equal access, investor confidence in the integrity of the market and efficiency outcomes. I therefore review the conceptual bases and empirical attributes of fairness and efficiency within markets, and consider the fairness and efficiency of the listed company disclosure framework in Australia. I find the level of public transparency across the equity market is highly variable; access to listed company information is far from equal; and the content and quality of ASX disclosures are sometimes insufficient for well-informed decisions. Commentary from companies, regulators and investors reveals a large gap in expectations between listed companies and their stakeholders relating to disclosure practices and enforcement. Moreover, scholarly studies and original research suggest that a significant proportion of information required for informed decisions and broader managerial accountability is disseminated on a private, selective or tiered basis. I conclude that reforms to the disclosure framework are needed to enhance its fairness and long-term economic efficiency. Specific reforms to the periodic disclosure, continuous disclosure and company briefing rules and processes are proposed. These reforms, if implemented, would enable more equitable access to information and reduce the scope for trading on inside or selectively disclosed information. In addition, general policy recommendations are ii outlined to promote a disclosure framework founded on a solid theoretical basis, with clearly identifiable goals, and a bold and effective regulatory and enforcement structure. iii ORIGINALITY STATEMENT I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project's design and conception or in style, presentation and linguistic expression is acknowledged. iv COPYRIGHT STATEMENT I hereby grant the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all proprietary rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation. I also authorise University Microfilms to use the 350 word abstract of my thesis in Dissertation Abstract International (this is applicable to doctoral theses only). I have either used no substantial portions of copyright material in my thesis or I have obtained permission to use copyright material; where permission has not been granted I have applied/will apply for a partial restriction of the digital copy of my thesis or dissertation. Signed ……………………………………………........................... Date ……………………………………………........................... AUTHENTICITY STATEMENT I certify that the Library deposit digital copy is a direct equivalent of the final officially approved version of my thesis. No emendation of content has occurred and if there are any minor variations in formatting, they are the result of the conversion to digital format. Signed ……………………………………………........................... Date………………………………………........................... v ACKNOWLEDGEMENTS I am deeply indebted to Professor Dimity Kingsford Smith for her belief in my abilities and commitment to be my supervisor on content not well explored within the Australian market. My gratitude extends to Dr Jeffrey Coulton, my co- supervisor from the School of Accounting at the UNSW, for his patience and diligence. The quality of the thesis empirical study and the discussion on other scholarly studies were significantly enhanced by Jeff’s assistance and efforts. A large proportion of the thesis content has been published in refereed journals as