In a recent tweet, President Trump announced his intention to have the SEC study a rule implemented in 1934 following the Great Depression that plays an integral role in our financial markets: quarterly earnings reports. The President cited conversations with “the world’s top business leaders” in his shift towards favoring a semiannual rather than quarterly reporting schedule. This move also follows in the steps of the 2013 European Union decision to shift towards the semiannual model rather than report quarterly earnings.
Corporations have long advocated for a semiannual reporting schedule for two reasons. First, reporting a company’s balance sheet — revenue, profit, and debt included — four times per year can inhibit its long-term strategy. Companies are often under pressure from financial analysts’ predicted benchmarks and the shareholder’s preference of making fast money to allocate resources towards a short-term strategy. The pressure on executives to make decisions that boost stock price or investor confidence quarterly can cause them to forgo a better long-term strategy in favor of maximizing quarterly growth.
Trump himself echoed, “We are not thinking far enough out. We’ve been accused of that for a long time, this country. So, we’re looking at that very, very seriously.”
“We are not thinking far enough out. We’ve been accused of that for a long time, this country. So, we’re looking at that very, very seriously.”
Second, executives have also viewed quarterly reports as a regulatory burden. It is often expensive and time-consuming for companies to put together such quarterly reports when resources could be diverted to other tasks in the goal of long-term capital formation.
However, corporate hawks worry semiannual reporting is too opaque a system to regularly and effectively gauge a company’s health. Also, many everyday investors feel that reduced reporting by corporations will give an edge to institutional investment firms that have connections to top executives.
Some prominent executives have already advocated for the semiannual reporting system, with the likes of Elon Musk of Tesla and Indra Nooyi of Pepsico recently pushing for change. Others have taken a more nuanced approach. Jamie Dimon and Warren Buffet published an essay together in the Wall Street Journal this summer recommending that quarterly earnings guidance be removed. Quarterly earnings guidance are goals set by the company to its shareholders on the financial targets it hopes to hit in the coming quarter. Dimon and Buffet posit that these guidance targets put overwhelming pressure on companies to perform on a short-term schedule. However, the two continue to advocate the publishing of quarterly earnings reports, which provide shareholders transparency on the financial health of a company.
Regardless, the United States continues to have one of the most stringent and consequently transparent financial reporting requirements in the world. These earnings report is essential to provide information on the American economy.
Now, regulators and citizens need to consider the balance between long-term growth and the readiness of financial information.
Lawrence is the Founder and Director of financial education nonprofit, Money Matters to Students (MMTS), the Chair of Youth Engagement for the Serve America Movement (SAM), Editor of the Finance, International, and Domestic News sections of The Jabberwock, and a Research Intern at the Federal Reserve Bank of Richmond.