Timing of Earnings Announcements

Interesting article, although the outcome of the research is not exactly shocking:


This study examines the value relevance of the timing of earnings announcement dates relative to prior expectations. It shows that when firms advance their earnings announcements at least four days prior to expectations, the earnings surprises in those quarters tend to be positive and the abnormal returns from two days after the earnings release date was announced through one day after earnings are actually announced are positive and significant. The converse is true for firms that delay their earnings announcement at least four days relative to prior expectations. The study also shows that firms which delay their earnings release date at least four days after previously setting the date earlier are characterized by both negative earnings surprises and abnormal returns from the delay announcements through one day after the actual earnings announcement date. These results can be used by investors to earn abnormal returns, by security analysts in revising their forecasts, and by option traders when earnings announcement dates cross option expiration dates.


My guess is that the same holds in the Malaysian environment, companies with good results want the news quickly out, while companies with bad results will wait until the last day of the month.

Companies that further delay their results beyond what is allowed: a big red flag, often horrific news is waiting.

And the title of "champion in delaying" will go to Golden Plus:

Four audited financial statements, four annual reports and fifteen quarterly financial reports, all delayed. Not a bad score!

Delistings: trust issues

Good article in The Financial Times: "Management Buyouts: Trust issues".

Management Buyouts are sometimes called delisting exercises in the Malaysian context.


In a typical company, investors wonder if the chief executive is competent. A tougher question emerges when the chief owns a big chunk of the shares: is the boss trustworthy? This week the founder of electronic music festival company SFX Entertainment, Robert Sillerman, offered to buy out the 60 per cent of the company he does not own, for $4.75 per share. The shares traded at $12 at the end of 2013. Still, the offer may well succeed - the bosses of Dole Food and Dell both won approval for their recent buyouts.

The dilemma with management buyouts is this: the boss has the inside perspective on the value of the company. Knowing where the bodies are buried puts them in a position to exploit the ignorance of Joe Public. Aggrieved shareholders of Dole Food claimed that its chief executive, who owned a 40 per cent stake, took advantage of a lull in the share price. In the case of Dell, the recent strong rally in the shares of HP - a very similar business - suggests Mr Dell timed his purchase well.

Shareholders have some protection against exploitation. Independent directors can negotiate on the behalf of public shareholders. Deals can require a majority of unaffiliated shareholders to vote in favour. Management buyouts often face a higher standard of review in deals in case of a legal challenge. Increasingly, shareholders demand "appraisal rights", where a judge decides if the deal price was fair.

Still, companies with big insider shareholders do not necessarily underperform in aggregate. A 2012 study by ISS found single-class "controlled" companies (where control is defined as ownership of 30 per cent of the shares) outperformed non-controlled companies as well as dual class controlled companies. The theory behind investing in companies where the chief executive has a big stake is that management and shareholders have the same interests. That is not always how it works in practice.


The above mentioned protection against exploitation in the Malaysian context:

• Independent directors are not known for standing up against the boss: they are chosen by the boss and their fees are paid by him. Also, independent directors could simply be the golf buddies or former classmates of the boss. There are some exceptions, but they are rare, and (often) not published. Enforcement against independent directors for failing their fiduciary duty in this matter is almost non-existent, I can't recall a single case.
• Legal challenges are very rare, they can be costly, taking a long time to conclude, not a good prospect for minority shareholders who will anyhow have a problem to band together like in a class action suit.
• Appraisal rights: they depend on an independent valuation. Unfortunately, I have seen too many "independent" valuations that were extremely favourable for the boss. Enforcement agencies (SC and BM) often do not like to question these valuations, is my experience, even when they appear to be highly unfair. Some independent valuers have been punished, but very rarely so.

In other words, unless there are some vocal fund managers who own at decent stake of the company, it is usually a very unequal fight. Bosses are of course very aware of this. 

The perils of Private Placements

This blog has warned many times about the perils of Private Placements (PPs).

Rita Benoy Bushon, CEO of MSWG, wrote an excellent article about this matter in Focus Malaysia:

In short:

• Why the need for PPs?
• Why not consider a rights issue in which all parties can participate?
• No transparency regarding the placees of PPs.
• The discount widens if the share price rises (and the PP can be aborted if the share price decreases).
• The urge for a limit on the size of a PP, say 10% of the shareholding through regulatory approval.

I like to add that minority shareholders in unlisted companies are often protected through the "right of first refusal", any new shares have to be offered first to the existing shareholders, who can take it up pro rata to their shareholding.

Berkshire Hathaway: 50 years of Value Investing

Berkshire Hathaway, the conglomerate managed by Warren Buffett and Charlie Munger, published its much anticipated 2014 year report. It is the 50th since Buffett took control of the company. A true monument of value investing.

At the end of the day, the only thing that counts is the long term returns, and they are extremely impressive:

Berkshire Hathaway always uses "marked to market" for listed securities despite their limitations, Maybulk and Noble might want to take note:

It is the hallmark of the great manager to admit mistakes, Buffett does not try to hide the mistake he made regarding Tesco, about which I wrote here and here.

The last three sentences are a proof of the amazing stock picking abilities of Buffett and Munger.

Reviews about the year report can be found at Fortune, Forbes and The New York Times.