President Donald Trump just lately revived a proposal he first raised throughout his earlier time in workplace: eliminating the requirement for publicly traded US firms to launch quarterly earnings reviews, as an alternative mandating semi-annual disclosures. The concept is framed as a technique to cut back compliance prices and permit companies to give attention to long-term technique fairly than the subsequent three months of outcomes. Whereas the notion has intuitive enchantment, it additionally raises critical questions on transparency, market effectivity, and the steadiness of energy between company managers and traders.
Quarterly reporting has lengthy been criticized for reinforcing what economists and company governance specialists name short-termism. Executives are sometimes compelled to handle earnings targets fairly than allocate capital in ways in which maximize long-term worth. Analysis has proven that managers generally defer or cancel value-accretive initiatives — equivalent to investments in analysis and improvement, plant growth, or workforce coaching — as a result of the prices depress quarterly earnings per share, even when the long-term advantages are clear. Furthermore, the cycle of “earnings season” can distort managerial incentives. Firms problem ahead steerage, analysts construct consensus estimates, after which the market reacts sharply as to if outcomes beat or miss expectations—generally by mere pennies per share. This fosters a tradition of earnings administration, the place discretionary accounting decisions or one-off price cuts are used to easy outcomes. For companies, significantly smaller ones with restricted assets, the compliance burden of quarterly filings provides prices in authorized, accounting, and investor relations features.
Critics argue that the US apply locations companies at a aggressive drawback relative to firms in Europe, the place semi-annual reporting is the norm. If managers are much less tethered to near-term EPS efficiency, they’ll function with an extended horizon, aligning company technique extra intently with innovation cycles, capital funding horizons, and structural shifts within the international economic system. Trump himself emphasised this when he contrasted America’s “quarterly mentality” with China’s means to take a multi-decade view.
However whereas quarterly reporting is imperfect, decreasing disclosure frequency to twice a yr additionally carries dangers. Essentially the most quick concern is the knowledge hole that might emerge between formal disclosures. Markets operate finest when info flows effectively; semi-annual reporting would go away traders with fewer information factors on which to evaluate efficiency and threat. For institutional traders, this is able to complicate portfolio administration, whereas retail traders would possibly face heightened uncertainty. An extended hole between reviews might additionally encourage info asymmetry. Company insiders would proceed to have entry to detailed, present information, whereas public shareholders must wait a number of extra months for official numbers. This creates larger potential for insider buying and selling and selective disclosure. Regulators would possibly reply with stricter interim disclosure necessities — undermining the very price financial savings the proposal seeks.
One other trade-off lies within the impact on market self-discipline. Quarterly scrutiny gives a type of ongoing accountability, pressuring administration groups to appropriate underperformance swiftly. With solely two reporting home windows annually, underperforming methods might persist unchecked for longer, leaving shareholders much less empowered to intervene or apply stress.
Lastly, the reporting cycle serves an vital signaling operate. Frequent outcomes permit the market to include new info into valuations in a well timed approach, making securities costs extra reflective of underlying fundamentals. Lengthening the reporting interval might enhance volatility across the semi-annual dates and weaken the method of steady value discovery that’s central to trendy monetary markets.
The selection, subsequently, shouldn’t be a easy one between expensive, short-termist quarterly reporting and environment friendly, long-termist semi-annual reporting. It’s as an alternative a trade-off between transparency and accountability on the one hand, and managerial flexibility and value financial savings on the opposite. Transferring to six-month reporting would relieve firms of some compliance burdens and probably encourage longer-term considering, however on the expense of environment friendly pricing and entry to info. It is usually price noting that most of the most pernicious facets of quarterly reporting stem not from the reporting itself, however from the ecosystem of earnings steerage, analyst estimates, and media scrutiny that has grown up round it. Firms should not legally required to problem quarterly steerage; many achieve this voluntarily. Some companies have already chosen to reduce on ahead steerage or to emphasise various efficiency metrics higher aligned with long-term worth creation.
Slightly than imposing a one-size-fits-all mandate, regulators might take into account a extra versatile method. Boards of administrators, executives, and shareholders may very well be empowered to determine the frequency and type of reporting most acceptable to the agency’s enterprise mannequin, shifting methods, and distinctive investor base. In such a system, one firm would possibly proceed to problem quarterly outcomes to sign self-discipline and transparency, whereas one other would possibly go for semi-annual and even annual disclosures coupled with sturdy narrative reporting. Some companies would possibly even experiment with advert hoc, event-driven earnings releases, offering updates solely when materials developments warrant disclosure fairly than on a hard and fast timetable. Traders, in flip, might vote with their {dollars}, allocating capital towards the companies whose disclosure practices finest match their preferences for transparency and time horizon. This might successfully flip reporting cadence into a brand new dimension of company competitors.
In the long run, the query is much less about whether or not quarterly or semi-annual reporting is “higher” and extra about whether or not disclosure practices can themselves evolve right into a aggressive benefit in attracting and retaining shareholder capital.
