TSE Cash Markets

As the announcement of financial results for the period from April to September 2024 reaches its final stage, there is a growing awareness of a slowdown in business performance. However, the speed of financial results disclosure can be an approach to selecting promising stocks in the long run. Investment money has begun to pay attention to the “instantaneous power” of financial statement disclosures, as it appears that the company has in place an efficient management system that can gather internal information in a timely manner, grasp business progress, and take measures when necessary.

 

“Why not bring forward the date for announcing the financial results?” This is a question that Kensuke Chiyo, a senior fund manager who manages value stock at Sumitomo Mitsui DS Asset Management, often asks when speaking with companies.

 

When preparing financial disclosure documents, companies need not only to compile their performance data, but also to discuss and incorporate their strategies for the next fiscal year and beyond. Companies that can quickly disclose information serving as a compass for management are more likely to increase their corporate value because they can speed up their management PDCA (Plan, Do, Check, Act) cycle. Based on this analysis, Kensuke Chiyo encourages early filings of financial statements.

 

If it takes a time to compile information from subsidiaries, scandals may not be identified immediately if they occur, which will be problems in terms of corporate governance. Japan Exchange Group has requested that listed companies compile and disclose full-year results no later than 45 days after the end of their fiscal year, adding disclosure within 30 days is preferable.

 

Most listed companies have complied with this request, with some even disclosing early in a race to be the first to do so. Yakiniku restaurant chain Amiyaki Tei, known as one of the fastest companies, announced its financial results for the April-September 2024 period on October 2nd. Companies with fiscal years ending in March, where many announcements are made, attract the attention of market participants by being the first to do so, and are also likely to be seen as proactive in Investor Relations (IR).

 

At first glance, the number of days required to disclose financial results may seem unrelated to a company’s performance or stock price. Nevertheless, an analysis by Morgan Stanley MUFG Securities quantitative strategist Kanji Ooi found that companies that disclosed early had better financial health and stock price returns.

 

For example, ROE (Return On Equity) is an indicator of capital efficiency. When the companies in the Tokyo Stock Price Index (TOPIX) for the period from July 2001 to September 2024 are divided into 10 groups based on the number of days between the end of their fiscal year and the disclosure date, the ROE of the group of the companies with disclosing financial result in the shortest period was 6.8%, and the next shortest group was 7.1%. In contrast, the longest group accounted for just 4.7%.

 

Similar trends were seen in sales growth rate and PBR (Price Book value Ratio), and after adjusting for biases between industries, etc., stock price also had better long-term performance with timely disclosure. Kanji Ooi analyzes, “Managers’ awareness of the need to speed up information processing within the company leads to improved performance, which is reflected in long-term stock price performance.”

 

What if it focuses on the stock price trends over the past year for companies that disclose their financial results early? Using QUICK data to analyze TOPIX constituent companies whose quarterly or full-year end was at the end of September 2024, 42 companies that announced within 25 days, and 32 companies (76%) had positive stock prices than at the end of October 2023, and 20 companies (48%) outperformed the TOPIX.

 

One of these companies, steak restaurant chain Bronco Billy, disclosed its financial results for the January-September 2024 period on October 18. The key to early disclosure is managing daily expenses on a store-by-store basis. “If the numbers are available early, management decisions can be made early.” the company said.

 

On the other hand, of the 648 stocks that disclosed their results on or after November 11th, more than 40 days after the end of September, only 170 stocks (26%) outperformed the TOPIX.

 

For example, Aozora Bank, which is scheduled to disclose its financial results on November 15th, stock price is 14% lower than at the end of October 2023. The stock price has been recovering since February, when it announced that it expects to post its first net loss in 15 years for the fiscal year ended March 2024 due to additional provisions to prepare for losses on US commercial real estate loans.

 

Some companies are moving to speed up the disclosure of financial results. Landix, a real estate trading company that was listed on the Tokyo Stock Exchange in 2019, has brought forward the announcement date by at least two business days from the fiscal year ending March 2024. The company has been working to appeal to the market by involving its management, such as by dividing expense settlements into multiple installments within the month to avoid concentrating work and thoroughly sharing the work of organizing documents among subsidiaries.

 

The company’s director, Ryuhei Matsumura, is pleased with the results, “By accelerating our work, we are now able to devote more time to formulating business plans.” The aim is also to raise awareness of individual investors by avoiding the peak financial year-end period. Landix shares have shown signs of recovery after hitting their lowest level since May 2021 following a sharp drop in Japanese stocks in August.

 

Starting in November, Tokyo Stock Exchange extended the closing time of stock trading by 30 minutes from 3:00 p.m. to 3:30 p.m., causing a stir over the time at which companies were disclosing their financial results. Fujifilm Holdings, which accelerated its financial results disclosure time on the 7th, reported that its consolidated net profit for the April-September 2024 period fell short of market expectations, causing the market to react with selling. Meanwhile, on the 5th, Kawasaki Kisen announced a dividend increase and share buyback along with postponing the closing time of trading by 30 minutes, and the following day its stock price temporarily rose 4% from the previous day.

 

In the short term, market reactions after financial results announcements will depend on business performance trends, but it cannot rule out the possibility that in the future the market will also pay attention to the speed at which financial results are disclosed, including the time on the day they are released.