Is Abandoning Quarterly Earnings Report Requirements A Good Idea?

President Donald Trump precocious revived a connection he first raised during his earlier clip successful office: eliminating nan request for publically traded US companies to merchandise quarterly net reports, alternatively mandating semi-annual disclosures. The thought is framed arsenic a measurement to trim compliance costs and let firms to attraction connected semipermanent strategy alternatively than nan adjacent 3 months of results. While nan conception has intuitive appeal, it besides raises superior questions astir transparency, marketplace efficiency, and nan equilibrium of power betwixt firm managers and investors.

Quarterly reporting has agelong been criticized for reinforcing what economists and firm governance experts telephone short-termism. Executives are often compelled to negociate net targets alternatively than allocate superior successful ways that maximize semipermanent value. Research has shown that managers sometimes defer aliases cancel value-accretive projects — specified arsenic investments successful investigation and development, works description , aliases workforce training — because nan costs depress quarterly net per share, moreover erstwhile nan semipermanent benefits are clear. Moreover, nan rhythm of “earnings season” tin distort managerial incentives. Companies rumor guardant guidance, analysts build statement estimates, and past nan marketplace reacts sharply to whether results hit aliases miss expectations—sometimes by specified pennies per share. This fosters a civilization of net management, wherever discretionary accounting choices aliases one-off costs cuts are utilized to soft results. For firms, peculiarly smaller ones pinch constricted resources, nan compliance load of quarterly filings adds costs successful legal, accounting, and investor relations functions.

Critics reason that nan US believe places firms astatine a competitory disadvantage comparative to companies successful Europe, where semi-annual reporting is nan norm. If managers are little tethered to near-term EPS performance, they tin run pinch a longer horizon, aligning firm strategy much intimately pinch invention cycles, superior finance horizons, and structural shifts successful nan world economy. Trump himself emphasized this erstwhile he contrasted America’s “quarterly mentality” pinch China’s expertise to return a multi-decade view.

But while quarterly reporting is imperfect, reducing disclosure wave to doubly a twelvemonth besides carries risks. The astir contiguous interest is nan accusation spread that would look betwixt general disclosures. Markets usability champion erstwhile accusation flows efficiently; semi-annual reporting would time off investors pinch less information points connected which to measure capacity and risk. For organization investors, this would complicate portfolio management, while unit investors mightiness look heightened uncertainty. A longer spread betwixt reports could besides promote accusation asymmetry. Corporate insiders would proceed to person entree to detailed, existent data, while nationalist shareholders would person to hold respective much months for charismatic numbers. This creates greater imaginable for insider trading and selective disclosure. Regulators mightiness respond pinch stricter interim disclosure requirements — undermining nan very costs savings nan connection seeks.

Another trade-off lies successful nan effect connected marketplace discipline. Quarterly scrutiny provides a shape of ongoing accountability, pressuring guidance teams to correct underperformance swiftly. With only 2 reporting windows each year, underperforming strategies could persist unchecked for longer, leaving shareholders little empowered to intervene aliases use pressure. 

Finally, nan reporting rhythm serves an important signaling function. Frequent results let nan marketplace to incorporated caller accusation into valuations successful a timely way, making securities prices much reflective of underlying fundamentals. Lengthening nan reporting interval could summation volatility astir nan semi-annual dates and weaken nan process of continuous value find that is cardinal to modern financial markets.

The choice, therefore, is not a elemental 1 betwixt costly, short-termist quarterly reporting and efficient, long-termist semi-annual reporting. It is alternatively a trade-off betwixt transparency and accountability connected nan 1 hand, and managerial elasticity and costs savings connected nan other. Moving to six-month reporting would relieve companies of immoderate compliance burdens and perchance promote longer-term thinking, but astatine nan disbursal of businesslike pricing and entree to information. It is besides worthy noting that galore of nan astir pernicious aspects of quarterly reporting stem not from nan reporting itself, but from nan ecosystem of net guidance, expert estimates, and media scrutiny that has grown up astir it. Companies are not legally required to rumor quarterly guidance; galore do truthful voluntarily. Some firms person already chosen to standard backmost connected guardant guidance aliases to stress replacement capacity metrics amended aligned pinch semipermanent worth creation.

Rather than imposing a one-size-fits-all mandate, regulators could see a much elastic approach. Boards of directors, executives, and shareholders could beryllium empowered to determine nan wave and shape of reporting astir due to nan firm’s business model, shifting strategies, and unsocial investor base. In specified a system, 1 institution mightiness proceed to rumor quarterly results to awesome subject and transparency, while different mightiness opt for semi-annual aliases moreover yearly disclosures coupled pinch robust communicative reporting. Some firms mightiness moreover research pinch advertisement hoc, event-driven net releases, providing updates only erstwhile worldly developments warrant disclosure alternatively than connected a fixed timetable. Investors, successful turn, could ballot pinch their dollars, allocating superior toward nan firms whose disclosure practices champion lucifer their preferences for transparency and clip horizon. This would efficaciously move reporting cadence into a caller magnitude of firm competition.

In nan end, nan mobility is little astir whether quarterly aliases semi-annual reporting is “better” and much astir whether disclosure practices tin themselves germinate into a competitory advantage successful attracting and retaining shareholder capital.