Public companies go through the same routine every quarter: preparing narratives about how they’ve done, meeting with the Street, and answering myriad questions from the investment community. Research suggests this cycle may encourage short-term behavior over long-term value creation. But maybe not for much longer.
Recently, Donald Trump called for the SEC to reconsider its policy of quarterly corporate reporting. This came shortly after the Long-Term Stock Exchange similarly announced that it would petition the SEC to change its reporting standard to semiannual.
Modernizing reporting practices in this way could preserve investor trust while focusing companies on creating value that lasts longer than three months. While companies can and do focus on long-term goals within the current system, it is tempting to take shortcuts to “meet the quarter.” Moving to 180-day reporting periods is the most direct way to try to break bad habits.
We’ve been here before – there have been several calls over the past decade to scale back reporting requirements in the name of combating short-termism. In his first term, the president put quarterly reporting in the crosshairs via a Tweet calling on the SEC to examine its requirements. More recently, Nicolai Tangen, head of NBIM (the manager of the $1.7T+ Norwegian Government Pension Fund), called for an end to quarterly reporting, citing it as “potentially damaging to market dynamism.”
When the current reporting requirement was put in place in the U.S. in 1970, the world was a different place: investors were more retail, and data was hard to come by. Today’s landscape shows little resemblance to that one – it’s more professionalized, more specialized, and all sorts of data on any public company is readily available online and in the news. Furthermore, the private equity market has evolved considerably and is not subject to similar disclosure requirements.
That reporting frequency, particularly quarterly reporting, has measurable effects on corporate managerial behavior has been demonstrated. A 2023 study of Japanese firms finds that when companies are required to report quarterly, managers cut R&D and adjust operations to meet near-term targets. A study in The Accounting Review, “The Real Effects of Mandatory Quarterly Reporting, reached similar conclusions in Europe: firms forced into quarterly disclosure engaged in short-term manipulation and saw performance rise briefly, then decline.
Quarterly earnings-per-share guidance, as distinct from reporting, is when companies project or signal their expected earnings for the next three months. The Street creates a consensus estimate around that guidance. Media reports whether the company “hit” or “missed” that number.
While issuing quarterly EPS guidance is now a minority practice (down from 50% of companies in the S&P 500 in 2004 to 21% as of 2024), it has become emblematic of the 3-month hamster wheel that many public companies still find themselves trapped on.
Elongating reporting periods could certainly help companies get out of the 90-day cycle, but it would not be a panacea. The U.K. and E.U. already allow companies to report less frequently, complemented by a requirement for ad hoc disclosure of significant events. This is a key caveat, and the remedy for the fear that, as echoed in a 2018 op-ed from Warren Buffett and Jamie Dimon, less reporting equals less transparency. Investors always want more data. But given the rise of private companies and their importance in the economy, it is hard to argue that reducing data frequency would lead to poorer allocation of capital or slower growth.
The SEC should view this petition as an opportunity to consider an alternative reporting framework that can maintain robust transparency, accountability, and prioritize long-term value creation over short-term returns. Alternatives such as cumulative reporting or simplified reporting of KPIs as opposed to full financials could be evaluated.
While not an overnight solution, a shift to make quarterly reporting optional could reorient capital markets to make them work better for the ultimate beneficiary – savers who are investing their money for the next 3 decades, not the next three months.