The investment strategies of Warren Buffett have long been a source of fascination for investors and financial analysts alikeOne of the most insightful examinations of his approach is found in Robert Hagstrom’s book, "The Warren Buffett Way." This comprehensive exploration highlights the key principles that underpin Buffett's decision-making, emphasizing the importance of satisfactory investment returns, reasonable stock valuations, and, crucially, the integrity of managementWhile the first two factors are rather objective, the essence of the philosophy lies in the trustworthiness and honesty exhibited by corporate leaders.

Reflecting on the landscape of the stock market, we can draw on recent memories from three to five years ago when investor sentiment was notably lowAt that time, many publicly listed companies made a plethora of promises involving asset restructuring, avoiding competition with peers, and securing further financing

These commitments became focal points for investors who were eager for recovery, effectively inflating valuations through the power of narrative and assurance.

This leads us to consider the findings of the "A-share Credit Ranking 2.0," which meticulously reviews the commitments made by companies listed in China's A-share market over the last decadeIt evaluates how many of those promises have been fulfilled and whether these commitments have influenced market performance directly.

One could classify the commitments made by management teams into various categoriesFrom board members pledging to participate in examinations to corporate leaders donating luxury vehicles for company use, the landscape is diverseA basic examination of data provided by Choice reveals that in the past decade, A-share companies made a staggering total of 62,083 commitments from boards and management, averaging more than 17 statements each day.

Among these, 233 commitments were either long overdue or outright violated, while 359 commitments saw modifications or waivers

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On a positive note, 13,908 commitments were completed successfully, and a remarkable 47,583 commitments are currently being honoredAfter filtering out duplicates—such as situations where different roles within the management team made consistent no-sales pledges—the effective commitments noted stand at approximately 16,300 with a commendable fulfillment rate of around 96.4%. This suggests that management teams are, as a whole, relatively trustworthy.

Diving deeper, these commitments can be categorized into five major types: stock-related, operational, disclosure-based, equity change commitments, and othersIt’s fascinating, however, how the descriptions of these commitments are often not rigorously definedFor example, during rights issuances, boards might promise specific financing timelines and ensure disclosure accuracy, while also offering no-sale commitments for months following the financing

Hence, multiple promises can arise from a single activity.

Interestingly, when analyzing the categories, stock-related commitments emerge as the most commonThese encompass pledges such as not selling shares following an initial public offering (IPO), engaging in stock buybacks to support share prices, and voluntarily agreeing to limit salesSuch pledges come from semi-mandatory commitments placed on companies during IPOs, refinancing, and restructurings, and thus inherently result in a high volume.

According to the data gathered, of the total commitments left unfulfilled, 153 pertained to stock changes—a considerable 25.84% of all violationsAmong these, 63 commitments were long-term defaults or outright violations, accounting for 27% of all breaches, while 90 involved changes or waivers due to objective factors, making up 25% of the defaults.

Despite the high volume of commitments and resultant violations, this category still proves to be the most reliable, with a fulfillment rate of 99.41%. Given that many stock-related pledges stem from fundamental regulations with stringent oversight—and even voluntary commitments are grounded in individual shareholder intent—these obligations generally prove easier to maintain.

On the other hand, disclosure commitments closely resemble stock-related promises

These typically entail management's routine assurances of accuracy in reporting and the absence of undisclosed significant issuesOver the past decade, only 23 such disclosure commitments went unfulfilled, which constitutes a mere 3.88% of all violations, further solidifying their reliability with a remarkable fulfillment rate of 99.83%.

Conversely, operational commitments present a more complex landscapeThis category encompasses promises to reduce related party transactions, ensure profit sharing, and resolve ownership disputes, among others, thus covering a broad range of operational factorsNotably, however, the fulfillment rate for these types of promises was significantly lower, with 122 non-fulfillment records reported, or 20.6% of all breachesThe high record of violations illustrates that this category has become a fertile ground for broken promises.

The issues arise partly due to the lack of regulatory oversight regarding day-to-day operations

Management teams, along with major shareholders, often wield substantial power that can lead to lapses in internal controlsTherefore, management teams in organizations with poor credit histories may breach commitments in pursuit of their self-interestsFor example, a case involving R&D firm Renfu Pharmaceuticals illustrates a long-standing breach of a commitment made by its majority shareholder not to utilize the company's operating capital for personal purposesHowever, between 2019 and April 2022, evidence indicated that the company provided significant funds to its parent company in a timeframe suggesting a violation of this commitment.

Despite the frequent issues in operational commitments, an overwhelming majority of A-share management teams do strive to uphold their credibility, maintaining a compliance rate of around 98.99% overall in this segmentWith respect to equity change commitments, however, the statistics take a downturn

In this classification, which includes refinancing, asset restructuring, and mergers or divisions—issues directly tied to company structure—250 instances of non-fulfillment were recorded, making it the category with the highest number of breaches, reflecting a 42.23% violation rate.

The varied nature of stakeholders involved in equity changes, combined with greater processing times and implementation challenges, involves higher risks of commitment violationFor instance, a 2017 commitment from Jianxin Mining regarding an asset injection plan fell through due to complications with prior debt guaranteesUltimately, the plan was altered to exempt the asset injection due to recognized uncertainties.

This underscores a capability issue, as many failed commitments stem from management and board misjudgments rather than mere chanceOverall, equity-related promises yielded a lower than ideal fulfillment rate of 91.82%, indicating that one in ten equity commitments remains unmet.

Lastly, we see the category of other commitments, which include board declarations regarding the independence of subsidiary operations, voting rights pledges, and the legitimacy of fund assurances

Many of these commitments are difficult to categorize definitively, yet they demonstrate adaptability in the face of challenges.

The concluding insights from this analysis underscore critical observations: commitments made under standardized regulations tend to exhibit high fulfillment rates, while those regarding daily operations often lag due to lack of external oversightWhen it comes to equity changes, the multifaceted nature and complexities involved contribute to frequent unfulfilled promises.

In essence, in the realm of corporate commitments, external regulatory pressure vastly outweighs internal control pressuresThe common lack of robust strategic investors and inadequate internal control systems are widespread issues for A-share companiesNonetheless, in recent years, management teams have demonstrated increasing emphasis on building credibility, evident in the rising trend of fulfillment rates.

Moving on to the next point, one question arises: does the historical fulfillment rate of management commitments possess value for investors? The straightforward answer is yes, it holds some reference value but lacks absoluteness: different types of commitments and corresponding timeframes impact assessments and valuation variably.

We continue with our earlier logic, distinguishing between standard commitments such as stock and disclosure-related promises versus non-standard promises like daily management and equity commitments

Due to substantial volume, we analyzed commitments made by differing management members on the same or similar types across multiple days, omitting data collected on the first day of issuance to maintain a random sampling methodology targeting at least 10% of commitments.

In standard commitments, disclosure promises that don’t carry strict fulfillment deadlines merit attention—investors' performance regarding commitment nodes demonstrates minimal market influenceConversely, commitments linked to increases or equity changes exhibit greater immediate impact on investors, reflecting a more significant relationship between pledges and stock performance.

To paint a clearer picture, let’s delve into outcomes following successful promises: disclosures and stock limit enhancements yield limited overall impacts on market performance relative to operational commitments

However, successful increases in equity commitments often translate into enhanced investor sentiment and subsequent gains.

Conversely, violations reveal a less favorable scenario: in average terms, nearly every type of breach results in diminishing investor trust, with direct repercussions on market valuationsAlthough the impact of disclosure breaches is lower, they remain critical due to their regulatory nature, with ramifications stemming from financial misstatements potentially leading to fines and investor lawsuits.

Additionally, breaches regarding equity and additional stock commitment promises are not without consequences, with market sentiments swinging dramatically amid reversals of previously optimistic evaluationsInterestingly, failure to adhere to stock limitations appears less impactful, possibly due to pre-existing market conditions prior to any breach.

In hindsight, utilizing past management commitments as a benchmark for predictive insights requires caution, particularly with the recent outcomes reflecting merely a marginal upside over the broader market index