Should companies move away from quarterly earnings reports?
Image: Financial Times
President Trump on Monday suggested in a Truth Social post that publicly traded companies in the US shift from reporting earnings on a quarterly basis and instead do so twice per year, reviving an idea from his first term that’s recently regained traction.
- Hours after Trump’s post, the Securities and Exchange Commission (SEC) confirmed that it’s “prioritizing this proposal to further eliminate unnecessary regulatory burdens on companies.”
- The SEC has required all publicly traded companies to report quarterly earnings since 1970.
It’s not just Trump. The President’s proposal echoes one from the Long-Term Stock Exchange, a US-regulated exchange with a focus on long-term, sustainable value creation. The LTSE has been meeting with the SEC for weeks about its proposal to switch from quarterly to semiannual reporting requirements (every six months).
- The case for less-frequent quarterly reports also has prominent fans like JP Morgan Chase CEO Jamie Dimon, as well as Berkshire Hathaway chair Warren Buffett.
- European exchanges swapped from quarterly to semiannual reporting following a 2013 rule change, though many companies still continue their 4x/year cadence.
The arguments
Proponents of the move away from quarterly earnings argue it would provide a wide range of benefits to companies, investors, and the US economy as a whole.
- Companies would potentially be able to operate better and more sustainably because they can focus more on long-term goals and efficiency-boosting investments, versus short-term earnings growth.
- Many CEOs and executives would prefer to deal with sell-side analysts and investors fewer than 4x/year.
- Small-cap companies with fewer resources would also appreciate having to offer half as many earnings reports, which typically draw resources and attention away from company operations.
On the flip side: Opponents of less frequent earnings reports argue that the potential downsides of such a change outweigh any potential benefits. They say the high level of clarity and transparency that’s currently required by the SEC is necessary to keep investors informed, to boost trust in US markets, and to reduce the chances of market manipulation.
Looking ahead…Trump’s proposal to reduce the frequency of earnings reports must complete a multistep process overseen by US securities regulators before it can become a rule.
📊 Flash poll: What are your thoughts on the proposal to shift SEC requirements for publicly traded companies from quarterly earnings to a frequency of 2x/year?
See a 360° view of what pundits are saying →
Sprinkles from the Left
- Some commentators argue that giving investors an estimate of next quarter’s earnings has created a short-term mentality in Corporate America that has hurt the competitiveness of the US economy.
- Others contend that in practice, quarterly reporting has evolved into a system of managing companies primarily for the quarterly numbers, which ends up harming their future prospects—much in the way teaching students solely to perform well on a standardized test distorts their learning.
- “Will ending quarterly earnings guidance free CEOs to think long term?” –Steven Pearlstein, WaPo
- “Why quarterly earnings reports should go” –Tensie Whelan, CNN
- “Who wins and who loses from fewer corporate earnings reports” –Madison Mills, Axios
Sprinkles from the Right
- Some commentators argue that moving to semiannual reporting is a good thing, because less frequent reporting could help lure some private companies into public markets, which would end up benefitting both businesses and investors alike.
- Others contend that there are many reasons why investors shouldn’t play along with companies that don’t report quarterly earnings, since the more transparent and reliable a company’s reporting is, the lower its costs will be to borrow money or raise equity.
- “Earnings Reports Don’t Need to Be Quarterly” –Allison Schrager, Manhattan Institute
- “What Investors Get Out of Quarterly Earnings” –Jonathan Weil, WSJ
- Why quarterly earnings will go the way of the dinosaurs” –John Foley, Financial Times
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