Solutions to enhance information transparency of domestic listed companies

DNHN - Experts from the Banking Academy's Institute of Scientific Research have proposed solutions to enhance the information transparency of domestic listed companies.

According to the 2023 Survey Report on Information Disclosure (ID) Activities in the Stock Market by Vietstock, the proportion of listed companies (LCs) meeting ID standards has been gradually increasing over the past 13 years (2011-2023). In the past three years (2021-2023), this proportion has remained high compared to previous years but has shown signs of stagnation. This period also saw the impact of the Covid-19 pandemic and major fluctuations in the stock market on the operations of companies in general and ID activities in particular. The list of LCs meeting ID standards in 2023 includes 364 units, equivalent to about 50%, a slight decrease from the 52% of the previous survey.

Additionally, no company has maintained continuous presence in the list of LCs meeting ID standards for 13 years, reflecting the reality that complying with ID regulations is not easy. This is a challenge even for large and leading companies.

The experts from the Banking Science Research Institute, Banking Academy have proposed solutions to enhance information transparency of listed domestic companies.

First, it is necessary to strengthen compliance monitoring and enhance evaluation capacity. Accordingly, in many developing stock markets, relying on the voluntary level of information provision by listed companies often yields low efficiency because current enterprises do not fully understand the benefits of information transparency. Even when regulatory agencies issue a complete system of regulations and laws on disclosure obligations, companies’ compliance remains very limited. Some companies disclose information in a superficial manner, with incomplete or even seriously inaccurate information. In this context, to enhance market information transparency, the role of market inspection and supervision is crucial. Strengthen inspection and monitoring of capital mobilization activities and the use of mobilized capital in the stock market; timely detect and handle cases of virtual capital increase and misuse of capital; implement stock listing segmentation, raise listing and maintenance conditions for stocks in each segment; supplement criteria for corporate governance, free transfer stock ratio, and profit-to-capital ratio. At the same time, improve the ability to detect violations and strictly handle them according to penalty sanctions for companies that do not disclose information as prescribed. Decree No. 156/2020/ND-CP dated December 31, 2020, and Decree No. 128/2021/ND-CP dated December 30, 2021, specifically list administrative violations in the securities sector and issue detailed penalty levels for acts related to lack of transparency in information disclosure.

The addition of these regulations is appropriate to the reality of administrative violations in the securities sector in Vietnam, where price manipulation acts are increasingly frequent and sophisticated. Although penalty sanctions exist, to detect information fraud and enforce regulations, it is necessary to issue detailed, specific guidance documents, ensuring quick and straightforward penalty procedures to create a deterrent effect while also enhancing the evaluation capacity of regulatory agencies. Currently, in Vietnam, some agencies and organizations have conducted evaluation reports on the information transparency of public companies, such as vietstock and the Hanoi Stock Exchange. However, these reports currently only cover some large public companies or are published based on aggregated data, without individual company data. Additionally, the quality of these reports needs to be thoroughly evaluated if they are to be used in market management and supervision. To use these reports more effectively, leverage expert resources from enterprises and research institutions, consider issuing tender packages for measuring corporate information transparency, specifying the contractor's capacity, implementation methods, and consulting with reputable international rating organizations. Once the quality of corporate transparency evaluations is assured, based on the report results, issue a list of companies by different information quality groups and put companies on the warning list under special supervision.

Second, consider applying the ASEAN Corporate Governance Scorecard and enhancing international information exchange links. To enhance the transparency of public companies, it is necessary to implement the ASEAN Corporate Governance Scorecard. The ASEAN Corporate Governance Scorecard, issued in 2011, is based on the corporate governance principles of the Organisation for Economic Co-operation and Development (OECD). Applying the ASEAN Corporate Governance Scorecard will provide useful information sources for investment decisions of international investors, motivating Vietnamese enterprises to improve governance quality according to regional standards, thereby improving the quality of goods on the domestic stock market. In addition, build a roadmap for connecting and exchanging information between the Vietnamese stock market and regional markets to enhance information disclosure quality according to international practices and increase the transparency level of the market and market participants. The connection and information exchange include information related to secondary market transactions, disclosed through the connection of trading and payment infrastructure between the secondary capital markets above, as well as information about market goods. Important and necessary financial disclosure information about the issuing organization, transactions of major shareholders, and bond credit ratings must also be publicly transparent and connected between markets according to a unified disclosure system among markets. This not only ensures fair information treatment between domestic and foreign investors in regional markets but also increases investors' access to regional markets, facilitating the free flow of capital between the Vietnamese capital market and regional capital markets.

Third, ensure the timely application of IFRS standards. Implement decisive measures to support enterprises transitioning from VAS to IFRS, especially small and medium-sized enterprises, through organizing training courses for the company's finance - accounting department, issuing job manuals, establishing IFRS transition consulting teams in the form of direct and indirect support, building hotlines, and inquiry channels to promptly support enterprises when requirements arise, avoiding delays, omissions, and difficulties in accessing.

Fourth, increase penalty measures for violations of information disclosure obligations. Many violations by enterprises regarding information disclosure, especially financial information, have not decreased and have not improved much from year to year. There are many reasons for this situation, but an important reason is the lack of specific sanctions for violations of financial information disclosure. For example, if a company's announced results before and after the audit differ, the subjects currently only need to explain the difference, without any heavy penalty measures for the disclosed content. Therefore, it is necessary to widely announce, promote through media to ensure listed companies understand and fully grasp the penalty measures to strictly comply with regulations. At the same time, issue specific regulations on fines or other forms of punishment for violations related to financial information disclosure.

Fifth, actively improve corporate governance mechanisms at listed enterprises. Many examples show that poor corporate governance mechanisms lead to significant discrepancies between pre- and post-audit disclosed information, greatly affecting investors' trust in the information disclosed by listed enterprises. The Board of Directors must enhance oversight activities, report company risks, and particularly ensure policies and processes to establish an effective control environment, including the establishment of an internal audit department. This aims to protect shareholders' rights, limit acts of power abuse or exploiting loopholes for personal gain by managers. Specific actions include using reputable and truly independent auditing firms, avoiding excessive use of non-audit services from the independent audit firm, which also aims to increase the auditor's independence, helping investors trust the audit results and opinions, thereby increasing investors' evaluation of the transparency of listed enterprises; establishing an efficient operating apparatus to minimize unwanted governance actions, such as appointing outside members to the executive board or restructuring the organizational system of enterprises. Have specific regulations and requirements on establishing an effective internal control system. Enhance internal audit activities and this department must be supervised and managed by the Board of Directors.

Linh Anh