What is material information?

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| Updated on April 6, 2019 | Share-Market-Finance

What is material information?

2 Answers
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@fairykumar7314 | Posted on April 6, 2019

Information is “material” if its disclosure would probably have an impact on the priceof a security or if reasonable investors would want to know the information before making an investment decision. In other words, information is material if it would
significantly alter the total mix of information currently available about a security insuch a way that the price of the security would be affected.

The specificity of the information, the extent of its difference from public information, its nature, and its reliability are key factors in determining whether a particular piece of information fits the definition of material. For example, material information may include, but is not limited to, information on the following:

■ earnings;
■ mergers, acquisitions, tender offers, or joint ventures;
■ changes in assets or asset quality;
■ innovative products, processes, or discoveries (e.g., new product trials or research efforts);
■ new licenses, patents, registered trademarks, or regulatory approval/rejection ofa product;
■ developments regarding customers or suppliers (e.g., the acquisition or loss of acontract);
■ changes in management;
■ change in auditor notification or the fact that the issuer may no longer rely onan auditor’s report or qualified opinion;
■ events regarding the issuer’s securities (e.g., defaults on senior securities, callsof securities for redemption, repurchase plans, stock splits, changes in dividends, changes to the rights of security holders, and public or private sales of additional securities);
■ bankruptcies;
■ significant legal disputes;
■ government reports of economic trends (employment, housing starts, currencyinformation, etc.);
■ orders for large trades before they are executed; and
■ new or changing equity or debt ratings issued by a third party (e.g., sell-siderecommendations and credit ratings).
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@mayankgupta5585 | Posted on April 8, 2019

A information is said to be material if it has the ability to influence the stock prices or the market price of the share of a company. Such information has the capability positively as well as negatively affect the value and the image of the company.

A material information is probably kept confidential and is not shared among the various stakeholders including the shareholders and the internal employees of the company.

For eg: The information relating to the mergers and de mergers, acquisitions, amalgamation, etc are considered to be a material information. These news may effect the share price of the company, positively as well as negatively. Thus are considered as a critical information.

Sharing the material information is considered to be a criminal offence. The sharing the price sensitive information which can influence the market price of the company is considered as Insider Trading. As per the SEBI rule, indulging in insider trading is a punishable offence.

Generally, the top level management of the company has the material information regarding the mergers, joint venture, etc. And thus the top level employees have high chances of indulging into the insider trading and sharing the material information for their personal gains.Loading image...
Material information can be with regard to the company, it's internal policy which may affect it's performance, it's employees, it's product and technology.

Sharing of the technology which has still not come into the market, with the competitor is an example of material information. It's an unethical practical in corporate governance to share the material information. But as per the Disclosure requirement in auditing every company has to disclose the material information which has affected the performance of the company, or due to which the company has stated the huge losses.
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