Stock investors dump company data for social media sources

By BD Correspondent

In Summary

• A newly released ACCA report that surveyed 300 investors from across the world reveals that more than two-thirds of investors have lost trust in company reports in the wake of the 2008 global financial crisis.

Stock market investors no longer trust the information contained in companies’ annual reports but instead value what they read on social media and other news platforms, a new study by the Association of Chartered Certified Accountants (ACCA) has found.

A newly released ACCA report that surveyed 300 investors from across the world reveals that more than two-thirds of investors have lost trust in company reports in the wake of the 2008 global financial crisis.

About 45 per cent of the surveyed investors said the annual reports are not useful to them, citing the excessive discretion that managers wield over the numbers as a weakness.

“This is a huge challenge to companies if investors no longer trust their reports. Investors, on the other hand, need to be clear on what they want and help the profession develop a financial reporting regime that offers the confidence they desire,” said ACCA Kenya head Anthony Kariuki.

Investor needs

He added that while it was easy to lump ‘investors’ together, the reality is that different investors want different information from financial reporting.

Financial experts say short-term investors, such as hedge funds do not need the same information as longer-term investors, such as pension funds.

“Companies and the finance teams that support them may need to provide a range of financial information that meets the needs of various investment groups, rather than look at the investment community as one,” said Mr Kariuki.

The survey also revealed a strong support for the role of external assurance (or auditors), which was seen as the main counter-balance to declining trust in company figures.

Only in areas like profit warnings and emerging risks and opportunities did investors believe speed of information outweighed assurance. In fact, 41 per cent of respondents said that they wanted to see auditing being extended to quarterly reports.

The research points towards a shift, which is linked to the economic downturn, in what investors want in terms of financial information.

The decline in trust in corporate information since the global financial crisis suggests that there is a bigger role for audit to play in rebuilding confidence in company statements.

The ACCA report shows there is increased investor appetite for regular reporting but this poses a big challenge in terms of approach.