Excerpt from the article:
MIGHTY PROCTER & GAMBLE loses 34% of its market value on the day it
earnings disappoint. Priceline loses 42% in a similar fiasco involving revenue. Apple
Computer loses 52% in one day. It is getting to be an everyday occurrence on Wall
Street that some unpleasant earnings announcement, or warning about earnings,
catches investors unaware and causes a stock to implode. All this fear and
uncertainty contributes much to volatility and thus to the cost of raising capital in
the equities market. It also creates opportunities for costly class actions alleging
securities fraud.
The problem could get worse before it gets better. Come Oct. 23 the Security &
Exchange Commission's new "Fair Disclosure" (FD) regulation goes into effect. It
forbids companies from dropping hints privately to stock analysts about where
earnings are headed. Without the guidance, the analysts may even be more off
base in their projections. Earnings surprises will get uglier--unless companies
find some new way to get the news out.
There is a solution in the offing, now being debated within the accounting
profession. It is real-time financial reporting. Under this system corporate
bookkeepers would update revenue and earnings figures every day of the quarter
and publish them on the Web for all investors to see. If a company were headed
into the soup, its shares would go down, but they would not go down abruptly. An
investor would not pay $53 for Apple on Thursday and then discover on Friday
that the shares are worth only $25. Ancillary benefit: continual financial disclosure
would minimize opportunity for the securities lawyers who parasitize Silicon
Valley....
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