Regulation FD has led to a decrease in the volume and quality of information released by public companies, according to a survey released today by the Association for Investment Management and Research.
In addition, 71% of respondents think the Securities and Exchange Commission's regulation requiring equal disclosure to all investors has contributed to market volatility because companies are providing decreased guidance on earnings.
"Clearly, many of our members feel that too many companies are taking an excessively conservative stance and (are) misinterpreting the new regulation to mean that they should have no one-to-one or small-group communication with anyone at all," said Patricia D. Walters, AIMR senior vice president, in a release. Rather, the rule "only prohibits selective disclosure or private communication of material, non-public information," she added (emphasis in original).
Nearly two thirds of respondents said the quality of oral communications has declined since the regulation was released, and 52% said clarity has deteriorated. But opinion is more closely split on whether companies are doing a better job with written communications: 31% said the frequency of written information from companies is better, vs. 22% who said it is worse; and 27% said timeliness has improved, vs. 18% who said it has declined.
What's more, more than 28% of investment professionals are doing more fundamental analysis, and one-quarter reported doing more quantitative analysis.
Overall, officials at AIMR - which had opposed the regulation - believe the increase in analysis doesn't make up for the declines in volume and quality of information: 52% of sell-side analysts and 39% of buy-side respondents said their confidence in their own corporate earnings forecasts has declined, vs. only a handful who said their confidence has increased.
Companies can "hide behind" the rule "when their fundamentals are deteriorating," one unnamed respondent commented.