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Semiconductor industry

Regulation FD: A New Era of Transparency in Corporate Communications

Strategic Insights

— 1 min read

In the wake of the Securities and Exchange Commission's selective disclosure rule, Regulation FD, companies are finding it challenging to navigate the new landscape of corporate communications. Amidst market volatility and economic uncertainty, companies are hesitant to provide guidance that may be perceived as relying on non-public information. However, this reticence is likely to have unintended consequences, including increased market volatility and a reliance on independent research that may lead to disparate earnings projections.

Key Takeaways:

  • Regulation FD has led to a significant increase in negative preannouncements, with 257 companies in the third quarter announcing they would not meet their earnings targets, compared to 155 in the second quarter this year and 188 in the third quarter of 1999.
  • The typical market reaction to negative preannouncements has been harsh, with companies such as Apple Computer and Intel experiencing significant stock price declines following their preannouncements.
  • Companies that have traditionally provided guidance to analysts are now scrambling to adapt to the new rule, with some opting to provide more general guidance or making updates more frequently.
  • Analysts are already adjusting to the new landscape, with investment firm Fred Alger Management Inc.'s Amar Mehta stating that analysts will have to rely more heavily on independent research and be more critical in their assessments.
  • Companies are being cautioned to become more cautious in their communications, with Financial Relations Board President Ted Pincus advising companies to release frequent updates to avoid SEC attention.

Statistics:

  • 257 companies announced they would not meet their earnings targets in the third quarter, compared to 155 in the second quarter this year and 188 in the third quarter of 1999 (First Call figures).
  • Apple Computer's stock price declined from a 52-week high of over $75 per share to around $23 per share following its preannouncement (Source: Apple Computer).
  • Intel's stock price declined over 20% in a single trading day following its preannouncement (Intel Corporation).
  • The number of negative preannouncements in the third quarter increased by 36% compared to the second quarter this year (Source: First Call).
  • 74% of companies responding to a survey by the Association for Investment Management and Research indicated that they were concerned about the potential impact of Regulation FD on their communications with analysts (Source: AIMR).

Sources:

  • "Wall Street Journal," September 25, 2000.
  • First Call Corporation.
  • Financial Relations Board.
  • Association for Investment Management and Research.
  • Apple Computer.
  • Intel Corporation.
  • Fred Alger Management Inc.
  • Ted Pincus, Financial Relations Board President.

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