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The Latin American Corporate Governance Roundtable 2000 Session 9: Disclosure and Transparency

OECD. Organization for Economic Co-operation and Development. The Latin American Corporate Governance Roundtable 2000 Session 9: Disclosure and Transparency CSN’s view and experience Maria Silvia Bastos Marques, CEO, CSN, Brazil 26-28 April, The São Paulo Stock Exchange, São Paulo, Brazil.

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The Latin American Corporate Governance Roundtable 2000 Session 9: Disclosure and Transparency

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  1. OECD Organization for Economic Co-operation and Development The Latin American Corporate Governance Roundtable 2000 Session 9: Disclosure and Transparency CSN’s view and experience Maria Silvia Bastos Marques, CEO, CSN, Brazil 26-28 April, The São Paulo Stock Exchange, São Paulo, Brazil

  2. Efficient Capital MarketsSemi-strong efficient market hipothesis • Capital markets are efficient when securities reflect all public information available, including: • Past market transactions • Economic and political information, as well as market regulation • Corporate Information - Corporate Strategy and Operational and Financial historical Information • Timely and thorough corporate disclosure is therefore a pre-condition to the existance of efficient capital markets.

  3. Goals of the Financial Statements • Evaluate historical corporate performance: • In order to achieve this goal, Brazilian corporates must go beyond the minimum required by the local regulation. Equity and Fixed income investors demand a more thorough disclosure. Therefore the volume of voluntary disclosure has increased in order to meet market demand. • Provide the basis for security valuation • Security valuation starts with the financial statements, but the financial statements do not reflect the value of the companies. Value must be assessed by the market through the expected cash flow. The creation of shareholder value is precisely the difference of a company´s expected market value and its current equity book value.

  4. Credibility of information provided • Preventive Auditing: • Strict internal Policies and Procedures guarantee ethical and lawfuloperational and financial standards for the company and improve corporate performance and image. • External Auditing of Financial Statements • An independent auditor is important in order to guarantee the credibility of the financial statements provided by the company.

  5. Value of CorporationsFuture performance is the key element for valuation • Role of Corporations: • Corporations should not disclose their internal forecasts, but provide data that enable analysts perform consistent and comprehensive projections and make their independent investment decision. • Corporate Dilema: • Provide investors with management’s expectations without hindering negotiatons. • Present corporate strategy and provide a “safe-harbour” statement, in order to avoid legal actions.

  6. Investors Demand Strategy DisclosureCSN’s ´99 survey with 50 Brazilian Investors - Gerp Research Institute Most important elements taken into acount when selecting a security • Note: 1 = most important / 9= least important • Investors value Corporate Strategy, Management Credibility and Transparency as the most important elements to assess before making an investment decision.

  7. Vehicles for disclosure • Formal Reporting: • Accounting principles worldwide are expected to converge to a world standard, facilitating peer companies comparison. • Internationalization of the capital markets have contributed to the development of “full disclosure” in Latin America, following the more regulated US Capital Market (20-F, etc). • Formal reporting is not enough to meet investors’ need of information. • Voluntary Disclosures: • Corporations must develop Investor Relations and Corporate Communications areas, to enable investors to monitor Corporate and Management performance in a more continuous base.

  8. Voluntary DisclosureGoal: Continuous monitor of corporate performance • Traditional Vehicles: • Road-Shows: For Fixed Income and Equity Investors • Conference-Calls: Minimum of one per quarter • Press Releases: For all relevant / material information • One-on-one Investor Meetings: at the company and around the market. CSN, in 1999, had 207 investor meetings. • Plant Trips: To present the investors with the operational structure of the company. Over 30 plant trips occur every year, with over 100 analysts visiting our steel mill. • Participation in local and international market events (conferences, seminars, etc.). CSN participated in 13 conferences in 1999.

  9. Voluntary DisclosureGoal: Continuous monitor of corporate performance • Web-based Communication: • Faster, Worldwide spread, cost-efficient. • Access the individual shareholder, with no additional cost. • Simultaneous and equitable release of information

  10. Advantages of an Efficient Market Fair Value of the securities Fair assessment of corporate strategy and future performance Corporations with good Disclosure Policies tend to be seen as good investment alternatives in the market with lower risk-premiums and higher market capitalization in the long-run.

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