President Donald Trump not too long ago 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 a substitute mandating semi-annual disclosures. The thought is framed as a option to scale back compliance prices and permit companies to deal with long-term technique somewhat than the subsequent three months of outcomes. Whereas the notion has intuitive attraction, it additionally raises critical questions on transparency, market effectivity, and the stability of energy between company managers and buyers.
Quarterly reporting has lengthy been criticized for reinforcing what economists and company governance consultants name short-termism. Executives are sometimes compelled to handle earnings targets somewhat than allocate capital in ways in which maximize long-term worth. Analysis has proven that managers typically defer or cancel value-accretive initiatives — equivalent to investments in analysis and improvement, plant enlargement, 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 concern ahead steerage, analysts construct consensus estimates, after which the market reacts sharply as to whether outcomes beat or miss expectations—typically by mere pennies per share. This fosters a tradition of earnings administration, the place discretionary accounting decisions or one-off value cuts are used to clean outcomes. For companies, notably smaller ones with restricted sources, the compliance burden of quarterly filings provides prices in authorized, accounting, and investor relations capabilities.
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 will function with an extended horizon, aligning company technique extra carefully 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 potential to take a multi-decade view.
However whereas quarterly reporting is imperfect, decreasing disclosure frequency to twice a yr additionally carries dangers. Probably the most quick concern is the data hole that will emerge between formal disclosures. Markets operate greatest when data flows effectively; semi-annual reporting would go away buyers with fewer information factors on which to evaluate efficiency and danger. For institutional buyers, this might complicate portfolio administration, whereas retail buyers may face heightened uncertainty. An extended hole between reviews might additionally encourage data 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 may reply with stricter interim disclosure necessities — undermining the very value 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 strain.
Lastly, the reporting cycle serves an vital signaling operate. Frequent outcomes permit the market to include new data 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 worth discovery that’s central to fashionable monetary markets.
The selection, subsequently, shouldn’t be a easy one between pricey, short-termist quarterly reporting and environment friendly, long-termist semi-annual reporting. It’s as a substitute a trade-off between transparency and accountability on the one hand, and managerial flexibility and price financial savings on the opposite. Shifting to six-month reporting would relieve firms of some compliance burdens and probably encourage longer-term pondering, however on the expense of environment friendly pricing and entry to data. It is usually price noting that most of the most pernicious elements 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 will not be legally required to concern 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.
Relatively than imposing a one-size-fits-all mandate, regulators might take into account a extra versatile strategy. Boards of administrators, executives, and shareholders could possibly be empowered to resolve the frequency and type of reporting most applicable to the agency’s enterprise mannequin, shifting methods, and distinctive investor base. In such a system, one firm may proceed to concern quarterly outcomes to sign self-discipline and transparency, whereas one other may go for semi-annual and even annual disclosures coupled with sturdy narrative reporting. Some companies may even experiment with advert hoc, event-driven earnings releases, offering updates solely when materials developments warrant disclosure somewhat than on a hard and fast timetable. Buyers, in flip, might vote with their {dollars}, allocating capital towards the companies whose disclosure practices greatest match their preferences for transparency and time horizon. This is able to successfully flip reporting cadence into a brand new dimension of company competitors.
Ultimately, 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.