Can continuous disclosure improve the performance of State-Owned Enterprises?

Abstract

In January 2010 the New Zealand Government introduced a continuous disclosure regime for State-Owned Enterprises (SOEs) modelled on the regime applying to publicly-listed companies (PLCs). The government sees continuous disclosure increasing the transparency of SOEs and that this will lead to improved financial performance by SOEs. We analyse the traditional rationales for continuous disclosure in PLCs and find that it is not axiomatic that a continuous disclosure regime designed for PLCs overlaid onto an SOE will offer the same incentives for performance improvement. The differences in owner identity and governance relationships in SOEs and the absence of a market for the trading of shares substantially weaken the performance improvement effect of the disclosure instrument in SOEs. In the absence of share trading it is not clear how a failure to disclose by SOE managers could be detected. Furthermore under the New Zealand arrangements the sanctions for SOE failure to disclose are very weak. This suggests that it is both easier for and more likely that SOE managers will withhold material information relative to their PLC counterparts. The hypothesis appears confirmed by a matched-pair comparison of disclosures by SOEs and private sector firms in the first year of the SOE continuous disclosure regime.