President Trump has just asked the SEC to study the implications of moving to a half-yearly reporting deadline instead of the current requirement to file 10-Q forms on a quarterly basis. Over the years, I have heard from plenty of managers who have lamented that the pressure of quarterly earnings targets imposes a heavy toll on their ability to focus on the long term. Some of the managers actively advocate doing away with quarterly reporting. Opponents fear that banning quarterly reporting will not stimulate long-run investments nor will it end earnings management. Instead, they worry that managers will simply go from obsessing over smoothing out quarterly numbers to obsessing about smoothing half-year numbers. Moreover, twice yearly reporting would make companies less transparent. Some argue that such a change would have little effect simply because analysts would pressure firms to keep up reporting on a quarterly basis. Which of these narratives best reflects what would happen if the U.S. were to ban quarterly reporting? What unintended consequences might such a move entail?
What Would Happen if the U.S. Stopped Requiring Quarterly Earnings Reports?
President Trump has just asked the SEC to study the implications of moving to a half-yearly reporting deadline instead of the current requirement to file 10Qs on a quarterly basis. What would such a move accomplish? The UK tried it and so provides a case study. The reality is nuanced and falls somewhere between the two extreme narratives. Moving away from quarterly reporting did not end corporate short-termism and earnings management, but nor did it destroy all transparency, leaving investors in the dark. If nothing else, President Trump’s initiative might begin a much-needed conversation about how firms can move beyond simplistic quarterly EPS targets towards a deeper discussion with their stakeholders about their long-term plans for creating real value. Those discussions need to become more common, regardless of whether companies report quarterly or twice a year.