After the IPO, an effort is required to preserve and improve the company's position in the capital markets. In order to maintain a viable secondary market for the company's shares, constant interest in the share needs to be kept up by providing enhanced disclosure to shareholders and analysts, holding conversations and conference calls with analysts, and filing periodic reports. A large part of the disclosure is based on expectations which do not amount only to the reports required by law, but extend to the degree of the company's ability and willingness to answer questions by investors and their representatives, make timely reports and give warnings regarding its operating results.
Nowadays, the price of many companies is discounted due to the lack of their managers' initiative in marketing the company to players in capital markets, participating in important conventions, and so forth. Companies invest many efforts in marketing information about their financial results and their current and future product and service packages. This information is marketed to the company's existing investors, but also and mainly to potential investors. The information is marketed by press releases, PR firms, and various conventions, either professional or for the capital market. This field of investor relations has a material impact on the company's market value. A company's results are measured by its actual financial performance, and the market expectation of its future performance. Since these estimates are based on the information which is available to the people who make the valuations for the purpose of investments, the significance of information dissemination to the financial community is immediately visible. The impact on the share's short-term value is significant for the purposes of raising capital, recruiting employees, and for acquisitions made with the shares being a component of the price.
Alongside the information provided to the financial community to develop a positive relationship with it, periodic reporting to the SEC is also required. Following are the main post-offering reporting duties imposed by law. Foreign companies are subject to reduced reporting requirements see the section on relief in periodic reporting requirements.
Periodic Reporting Duties
Immediately after the conclusion of an IPO, the company is subject to reporting duties under the Securities Exchange Act of 1934, which include an annual report (10-K) and a quarterly report (10-Q). The reports are also filed with the SEC in electronic form (see a later section for a discussion of the duties imposed on foreign companies).
Reporting Material Events and Stock Exchange Rules
Material events have to be reported to both the SEC and the stock exchange on which the share is listed. Reporting to the SEC is made on Form 8-K within 15 days from the occurrence of the event, only with respect to the particular events specified in Form 8-K. A more material reporting duty is imposed by the stock exchanges, which require an immediate report on a list of issues specified in the stock exchange's rules (including unusual stock behavior), as well as on any other material event.
Usually, companies also publish an "earnings warning" when their financial results are materially different from previous forecasts made by the company or by analysts.
Many studies indicate that almost all of the leading companies in the United States demonstrate financial results (particularly earnings per share) which are no lower than the average projection made by analysts. The main reason for this, according to such studies, is that many companies lower the expectations before they present the actual reports by providing earnings "guiding." However, in periods of extreme market slowdown, the number of companies which announce results falling short of projections is naturally greater. For instance, during the year 2001, the number of companies which failed to meet projections was the highest in close to a decade.
In view of new regulations of the SEC (Regulation FD), companies can no longer discriminate among investors in the information they provide. For instance, companies must allow investors access to information which is delivered in meetings with analysts. It is still too soon to say what the significance of this change will be since, although the principle of an equitable distribution of information among investors is both noble and fair, various legal risks and a fear of enhanced volatility in share prices may affect the scope of the information which is now relayed to the public.
The company is required to file a detailed annual report and to deliver it to all the shareholders. This report must include most of the information contained in the annual report to the SEC (10-K) as well as information pertaining to any matter brought to the vote of the shareholders. Furthermore, whenever a shareholders' voting is required (at least once a year in the annual meeting), the company must send shareholders proxy forms, accompanied by detailed information about the topics of the vote. The annual report is usually sent to the shareholders together with the proxy form.
The Prohibition on Insider Trading
Section 10b-5 of the Securities Exchange Act of 1934 prohibits the employment of manipulative and deceptive devices in connection with the sale of securities. This section is widely used to fight the usage of inside information. In addition, the company's managers and insiders are subject to even more severe rules and a duty to report any trade in the share, under Section 16 of the same act.