2 November, CMIE Information Disclosure by Firms in India Mahesh Vyas 2 November 2002, Goa Adapting India’s Financial Sector to a Globalizing World

2 November, CMIE Information Attributes Necessary for an Efficient Market Economy Reasonably Detailed Reliable High Frequency Timely Well Delivered The focus is currently on Reliability.

2 November, CMIE Progress in India during the 1990s The degree of detail has improved. Company accounts are more reliable today than ever before but, suspicions linger. Frequency of data releases has improved Timeliness has improved. Delivery mechanisms have improved. Yet, there is scope for improvements.

2 November, CMIE Disclosure practices vary across companies and over time. International research has shown that companies with better disclosure practices obtain finance at lower costs. It would be desirable to generate a summary measure of the disclosure practices of individual companies in India to enable financial markets to allocate finances efficiently.

2 November, CMIE CMIE has initiated a project to generate a summary measure of the Disclosure Practices of individual companies in India. Such a measure would be generated on a a Continuous basis. It would be based on all publicly available information.

2 November, CMIE The Broad Methodology Measure the Quantity of Information published by the company. A weighted check-list of over a thousand individual items of disclosure. Mandatory disclosure items are assigned higher weights. Measure the Quality of Information presented. A scale of Quality based on Auditors Qualifications & Notes to Accts. Adherence to Accounting Standards Measure the Timeliness of the publication. The Summary Measure would look at All kinds of Documents published by the Companies

2 November, CMIE The Broad Methodology The IndyScore -- Summary Measure of Corporate Disclosure also includes Continuous Disclosures by Companies. Clarifications provided on media reports and rumours Disclosures during “Exclusive” interviews Disclosures on Material Events, etc. The IndyScore is not an Annual Affair. IndyScore gets updated everytime a new piece of information is released (or not released) by a company.

2 November, CMIE CMIE has taken up a Pilot Project of generating the IndyScore for the Nifty and Nifty Jr. companies. The Pilot Project is expected to be completed by the end of December We have already seen several hurdles in the creation / perfection of the IndyScore.

2 November, CMIE CMIE has an excellent monitoring machinery today. Possibly, the best in the country. But, being a private sector initiative, it is constrained in its inability to demand information. Thus, there is an element (no matter how miniscule) of hit-or-miss in the monitoring. For IndyScore to be perfect, there needs to be certainty regarding the availability or non-availability of information. How can we make an IndyScore for all the 10,000 listed companies ? How can one be sure that the 10,000 th company has not published any information ?

2 November, CMIE Can the EDIFAR Help ? Eventually possibly, Yes. But, there are problems in all Electronic filing of Information by Companies. Acceptance of Documents Fears of Tampering File Formats Design Constraints on the Contents If the DCA is planning an Electronic filing project, it should re-think and look for alternative solutions.

2 November, CMIE Disclosures have Improved The Problem is in the Delivery Companies are not required to send any information to its shareholders except the Annual Accounts and notices of resolutions. All other information is available only through the press or through the Exchanges. Most Interim Results, changes in Directorships, Shareholding Pattern, etc. are largely inaccessible to Investors, except through information intermediaries. In case of unlisted companies, the information lies in largely inaccessible godowns.

2 November, Can the Government be dis-intermediated from the Information Dissemination Process? CMIE

2 November, CMIE Suggestions SEBI should mandate that all listed companies should have an accessible website that contains all information the company is required to disclose. The basic ground rules on the presentation of the information on companies’ websites can be easily articulated. But, we should leave the companies to be creative beyond that. Companies should send a mail to the regulator that it has presented a mandatory piece of information on its site.

2 November, CMIE Suggestions The companies’ website also serve as the platform for continuous disclosures. Exchanges may ask for clarifications on press reports or rumour or volatility, and companies should publish the information on their companies website. SEBI need not spend any more on expanding EDGAR. In stead it can spend more on monitoring the companies’ websites and initiating action against non-compliance.

2 November, CMIE Suggestions There need be no compulsion for listed companies to publish their accounts in the newspapers. This would be a major cost saving for companies as websites are very cheap compared to advertisements in newspapers.

2 November, CMIE Suggestions DCA should mandate that all public limited companies should provide all the mandatory information on their websites and inform the DCA of having done so. There is no case for the DCA to charge for companies filing their accounts and other documents anymore. The DCA can redesign and spend much lesser on its proposed electronic filing system. DCA may facilitate private companies presenting their information on a server it may host.

2 November, CMIE Win-All Government saves tax monies by not setting the huge infrastructure on EDGAR-like systems. Companies save shareholders monies by not having to spend on costly advertisements and filing fees with the DCA. Investors have better access to information. Possibly, better than anywhere in the world. IndyScore becomes more reliable. Good disclosure practices will lead to lower cost of capital.

2 November, Thank you CMIE