Over the past year I’ve noticed a marked increase in ‘questionable’ announcements from ASX-listed businesses. Long-term readers might recall how the now-delisted David Jones got itself in hot water after releasing a quarterly sales report that was marked as not market sensitive. This coincided with some director dealings that were not looked upon favourably by commentators.

Before I get into it, just what is ‘market sensitive information’, anyway?

Companies themselves determine whether announcements are ‘market sensitive’, and according to the ASX’s Continuous Disclosure rules, ‘market-sensitive information’ is information that the company believes ‘a reasonable person would expect to have a material effect on the price or value of the entity’s securities’.

Obviously, David Jones’ sales update definitely falls into that category. But what about companies that mark announcements as market sensitive when they might not be?

The market sensitive announcements…that aren’t

Start-up Reffind Ltd (ASX: RFN) did this regularly. On the face of it, its announcements seemed market sensitive, but many of them – ‘REFFIND expands into New Zealand with two customer wins‘, ‘Australia’s largest McDonalds franchisee joins REFFIND‘ had a minimal impact on the company’s sales, which were $164,000 in the first quarter immediately subsequent to these (and many other) customer signings.

As far I am aware Reffind didn’t have have a website in its NZ ‘market’, let alone a sales team. It would have been more accurate to say that Kiwi customers had decided to use Reffind’s products.

Yowie Group Ltd (ASX: YOW) is another one spamming announcements. Several of them, like: ‘Yowie off to strong start in new Financial Year‘ (this coming just 5 days after the annual report) and ‘Yowie upweights advertising investment by USD$1 million‘ are of questionable value.

Any info on sales to date could have been put into the annual report under the ‘forecast’ or ‘outlook’ or ‘events subsequent to report date’ section, like so many other companies do. As to the marketing investment it should be asked whether a US$1 million investment in marketing is really that significant for a company with an A$140 million market cap, US$31 million cash in the bank, and neutral operating cash flows?

It’s noteworthy in the sense that it’s Yowie’s first big marketing campaign, but any reasonable person would assume that a company conducts marketing campaigns in its ordinary course of business. Other companies do this too, but their announcements are generally not flagged as market sensitive.

Reffind and Yowie are far from the only culprits, with 1-Page Ltd (ASX: 1PG) also going through an ‘announcements’ phase – and let’s not get started on the speculative biotechs.

Foolish takeaway

Market-sensitive announcements command instant attention from investors, but they can also be used by a wily company for a variety of purposes. Some companies might try to use them to pump up their share price (perhaps in order to raise capital at a better price) and to give the illusion of progress when there might not be as much of that as investors would like.

All shareholders should view market-sensitive announcements with a critical eye, particularly if they come in quick succession or appear to be trying to hype up the company’s success or prospects. It’s certainly better to err on the side of caution, but I encourage all management teams to consider if their latest announcement is really market sensitive, or if they could just release it as a non-sensitive announcement.

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Motley Fool contributor Sean O'Neill owns shares of Yowie Group Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.