Determining the usefulness of real-time information

Against this background, this interview-based research project by Subhash Abhayawansa (Swinburne University of Technology), Mark Aleksanyan and Ioannis Tsalavoutas (University of Glasgow, Adam Smith Business School) and Kenneth Lee (London School of Economics and Politics), specifically set out to:

• Gain an evidence-based understanding of professional investors’ and financial analysts’ perceptions and usage of real-time and quick-time data in their practice of analysis of company performance, equity valuation and investment decision-making;
• Assess analysts’, investors’ and other stakeholders’ current and future perceived demand for real-time information in general, and quick-time corporate reporting information in particular; and

• Assess users’ perspectives on the need for a new corporate reporting and assurance paradigm, and/or future regulation of real and quick-time data.

By addressing these objectives, the study aims to inform a broader debate about the relevance of the current corporate reporting paradigm (regulations, reporting standards and corporate reporting practices) in the era of real-time and big data, and steer future research in this field.

Key takeaways

Some of the key findings from the project were:

• No 'one size fits all' for users.

  When it comes to data usage, users should not be considered a uniform group. Very different perspectives on data usage and demand emerged, depending on users' functional role (professional investors vs. sell-side analysts), analytical approach (fundamental vs. quantitative), and analytical time horizon (short-term vs. long-term focused) which we address at (2). 

• Traditional investors are sceptical about more RT/HF reporting, but quantitative investors would welcome it.
  Investors and analysts that follow a more traditional fundamental investment or analytical approach, or have a long-term investment horizon, express scepticism about corporate-reported RT/HF information. In contrast, users adopting a shorter-term investment or analytical horizon (whose investment or analytical horizon is less than one year) and those adopting a quantitative investment or analytical approach tend to consider RT/ HF information highly valuable.

• Concerns that increasing company reporting will lead to undesirable short termism.
  Many users are apprehensive that higher frequency reporting could lead to various forms of 'short-termism'. These include the failure of such a reporting model to improve the market's ability to understand the long-run performance of companies and how it might cultivate short-termism amongst corporate managers, distracting them from engaging in value-adding activities which address value creation for the long term.

• RT/HF information would not fit with existing models and processes.

  The utility of corporate-reported RT/HF information depends on users having access to the resources, capabilities and skills to assimilate this information and the compatibility of the information with current analytical models. There was significant concern among those users on both points. Furthermore, the lack of external assurance would make RT/HF reporting inherently less robust, resulting in a potentially higher incidence of errors in reported information and reducing users' confidence in its reliability.

• RT/HF reporting could undermine investors' and sell-side analysts' work.
  Sell-side analysts are already facing the ongoing squeeze in research budgets as a result of MiFlD Il and a fear was expressed by this group that RT/HT information would undermine their information discovery role and reduce the value of research. Additionally, professional investors felt that RT/HF information could reduce the ability of those adopting a fundamental investment or analytical approach to generate superior returns, as there would be less information asymmetry to exploit using their superior research skills.

• Companies need to proceed with caution regarding increased reporting frequency.
  Given that in most sectors only quantitative users, and those targeting a short-term investment/analytical horizon, want RT/HF information from companies, it is unlikely to be a priority for most firms. Outside of 'special case' situations, such as for companies operating in highly volatile/fast-moving sectors or in periods of market shocks, companies should exercise caution and consider if their target audience is likely to be able to fully utilise a RT/HF reporting model before committing resources to pursue it.

• Calls for more consistency of accounting information.
  While in the eyes of most users there is no pressing need for companies to transition to a RT/HF corporate reporting model, many interviewees expressed a desire for enhanced digitisation of accounting data and improvements to inter-company consistency of corporate- reported accounting information.

• Major drive needed to enhance skills.
  Educational institutions, professional bodies and other private sector training entities need to integrate the principles and practice of coding, data science and data analytics into their curricular and continuous professional development programs. The need in the market for these skills was a consistent theme in this research.