Information transparency is the lever to upgrade the stock market

Need to improve on updating information in English

After more than 20 years of operation and development, the Vietnamese stock market has become an important capital mobilization channel in the market economy and increasingly affirms its important role in promoting the country's socio-economic development.

According to the 2023 Vietstock Survey on Information Disclosure Activities on the Stock Market, the rate of listed companies meeting information disclosure standards has tended to increase over time over the past 13 years (2011 - 2023).

In addition, securities is the industry with the highest rate of enterprises meeting CBTT standards in 2023 in the market. Specifically, this industry has 20/25 enterprises meeting CBTT standards, equivalent to a rate of 80%. This number is much larger than the second-ranked industry, banking (rate of 65%).

Overview of the Workshop "Creating motivation to upgrade Vietnam's stock market". Photo: Phan Anh

Speaking at the workshop "Creating motivation to upgrade the Vietnamese stock market" organized by Lao Dong Newspaper in collaboration with the Ministry of Finance and the State Securities Commission on the afternoon of July 2, Associate Professor, Dr. Tran Viet Dung - Director of the Institute of Banking Science Research, Banking Academy emphasized that in 2022, enterprises often did not meet the regulations on information disclosure in the stock market related to the annual general meeting of shareholders. However, in 2023, errors related to financial statements were overwhelming. During the period, 161 enterprises were reminded or handled by management agencies for violations of information disclosure in the stock market. Regarding timeliness, violations of regulations on information disclosure (late, non-disclosure or overdue submission of information) are common, with about 50% of violations of regulations related to information disclosure.

According to the assessment of MSCI and FTSE, Vietnam has achieved but still needs to improve in updating information in English. According to current regulations, the official language for information disclosure is Vietnamese, while information disclosure in English is only mandatory for the Stock Exchange, Vietnam Securities Depository and Clearing Corporation, while other subjects are encouraged and are for reference purposes only. Market research by the World Bank shows that only about 10% of the homepages of listed companies disclose information and financial statements in English and most of these companies are large-cap companies.

"Moreover, currently, only about 50 - 60% of Vietnamese enterprises have applied IFRS or are planning to convert to IFRS. Along with that, according to Deloitte's survey, among enterprises currently applying IFRS in Vietnam, only about 30% fully apply IFRS standards (all accounting transactions are recorded according to IFRS from the beginning), the remaining 70% only make conversion entries when preparing and presenting financial statements" - Mr. Dung said.

Strengthen compliance monitoring and improve assessment capacity to promote information transparency of listed companies

From the above barriers, Associate Professor, Dr. Tran Viet Dung said that to improve the transparency of information on domestic listed enterprises, the first thing is to strengthen compliance monitoring and improve assessment capacity.

Accordingly, the role of market inspection and supervision is very important. Strengthen inspection and supervision of capital mobilization and use of mobilized capital in the stock market; promptly detect and handle cases of virtual capital increase and misuse of capital; classify listed shares, improve listing conditions and conditions for maintaining listing for shares in each table; supplement criteria on corporate governance, free-floating stock ratio, and profit ratio on capital scale. At the same time, improve the ability to detect violations and strictly handle according to sanctions for companies that do not disclose information as prescribed.

Currently, a number of agencies and organizations in Vietnam have conducted reports assessing information transparency of public companies. However, these reports are currently limited to a number of large-scale public companies, or have just been published based on aggregate data, and do not yet include data from individual enterprises. In addition, the quality of the reports also needs to be carefully assessed if they are to be used in market management and supervision. In order to use these reports more effectively, taking advantage of expert resources from enterprises and research institutions, it is necessary to consider issuing bidding packages on measuring corporate information transparency, including specific requirements for contractor capacity, implementation methods, as well as consulting with prestigious rating organizations in the world. Once the quality of corporate transparency assessment is ensured, based on the results of the reports, a list of companies according to different information quality groups is issued, and the companies on the warning list are put under special supervision.

"In addition, it is necessary to consider applying the ASEAN corporate governance scorecard and strengthening international information exchange links. To enhance the transparency of public companies, it is necessary to implement the application of the ASEAN corporate governance scorecard. The application of the ASEAN corporate governance scorecard will help provide useful information for international investors' investment decisions, creating motivation for Vietnamese enterprises to improve governance quality according to regional standards, thereby improving the quality of goods in the domestic stock market.

In addition, building a roadmap for connection and information exchange between the Vietnamese stock market and regional markets to enhance the quality of information disclosure according to international practices as well as enhance the transparency of the market as well as market participants. The connection and information exchange not only includes information related to transactions on the secondary market, disclosed through connecting the transaction and payment infrastructure between the above secondary capital markets, but also includes information about goods on the market. Important and necessary information on financial disclosures about the issuing organization, transactions of major shareholders, bond credit ratings, etc. need to be transparently disclosed and connected between markets according to a uniform disclosure standard system between markets. This demonstrates fair treatment of information between domestic and foreign investors in regional markets, helping to increase investors' access to regional markets. "Thereby, creating favorable conditions for the free circulation of capital flows between the Vietnamese capital market and capital markets in the region," Mr. Dung emphasized.

Furthermore, it is necessary to ensure the progress of applying IFRS standards. Take drastic measures to support businesses in converting from VAS to IFRS. Especially in small and medium-sized enterprises, by organizing training courses for the company's finance and accounting department, issuing work manuals, establishing IFRS conversion consulting teams in the form of direct and indirect support, building a call center and a channel to answer questions of businesses to help businesses receive timely support as soon as requests arise, avoiding delays, omissions, and difficulty in accessing.

Strengthening sanctions against violations of information disclosure obligations is also very important. Many violations by enterprises regarding information disclosure, especially financial information, have not decreased and have not improved much from year to year. Accordingly, it is necessary to widely publicize and promote propaganda through the media so that listed companies can better understand and fully grasp the sanctions so that they must strictly comply with the regulations. At the same time, specific regulations on sanctions for violations related to financial information disclosure such as late submission of financial statements, accuracy of differences in profit results, revenue, total costs, etc. and accessibility are issued.

From there, monitor the storage, arrangement and publication of information of enterprises. At the same time, timely reminders and warnings are given if enterprises do not invest in providing information in the most convenient way for the public. Moving towards encouraging enterprises to publish financial statements in English to attract foreign investors, this is also one of the ways to increase the international integration of Vietnamese enterprises.

"Finally, it is necessary to actively improve the corporate governance mechanism at listed enterprises. Many examples show that the corporate governance mechanism is not good, leading to many discrepancies in pre- and post-audit information disclosure with a very high level of discrepancy, affecting investors' confidence in the information disclosed by listed enterprises. The Board of Directors must strengthen monitoring activities, report on the company's risks, and especially ensure that there are policies and procedures to establish an effective control environment, including the establishment of an internal audit department. This is to ensure the rights of shareholders, limit abuse of power or exploitation of loopholes for personal gain by managers.

Some specific actions include using reputable and truly independent auditing companies, avoiding excessive use of non-auditing services from independent auditing companies. This helps increase the independence of auditors, helps investors trust the results and opinions of the audit more, and increases investors' assessment of the transparency of information of listed companies. Establishing an effective operating apparatus to minimize unwanted governance behaviors such as appointing external members to the executive board or re-establishing the organizational system of enterprises. There are specific regulations and requirements on establishing an effective internal control system. Strengthening the operation of internal audit and this department must be under the supervision and management of the Board of Directors" - Associate Professor, Dr. Tran Viet Dung commented.