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Economist condemns market disclosure rules

By Nick Stride

Friday 4th April 2003

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The new mandatory disclosure regime for listed companies has no proven benefits for investors and many disadvantages for companies, a securities markets conference heard last week.

Bryce Wilkinson of Capital Economics told the LexisNexis conference in Auckland last week that large companies and institutions didn't need the government to force companies to disclose information as they had their own research teams and were powerful enough to demand answers.

Retail investors had neither the time nor the expertise to analyse the mountains of detailed information disclosed and needed professionals to help them, Mr Wilkinson said.

The list of disadvantages included the enforced disclosure of information that benefited competitors more than shareholders; reduced incentives for companies to invest in information that might have to be disclosed to competitors; reduced incentives for brokers to invest in research; and reduced incentives for companies to list.

Shareholders could be so deluged in ill-interpreted information that their confidence in a company's management could be undermined, Mr Wilkinson said.

He cited the example of Baycorp Advantage chief executive Keith McLaughlin, who recently held a board meeting at 6am to try to determine whether a drop in sales was seasonal or part of a trend.

The board played safe and disclosed, the share price plunged and some shareholders began talking of sacking him.

Mr Wilkinson found nothing of merit in the government's securities markets regulatory programme, arguing ministers' "loose talk of cowboys and the wild west is grossly irresponsible in the light of New Zealand's high rankings for investor protection and the quality of its laws and legal system."

Instead of "promoting confidence" regulators' aim should be to promote market efficiency.

"The government's hope is that there will be greater investment in the New Zealand sharemarket as a result of improved confidence from greater regulation."

"However, it is possible that the higher regulatory costs and risks for company managers and market professionals will reduce investment, access and liquidity," Mr Wilkinson said.

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