President Donald Trump has proposed changing the requirement that companies submit quarterly earnings reports to a requirement that they submit semiannual reports instead.
Under current law, the Securities and Exchange Commission (SEC) mandates that companies file information detailing their financial performance, corporate governance, and other relevant disclosures. The purpose is to offer transparency for financial markets, shareholders, and analysts.
The president said that after about 50 years, it is time for reform.
“This will save money, and allow managers to focus on properly running their companies,” he said.
“Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis???’ Not good!”
Trump added that the idea is subject to SEC approval.
In 2018, during his first term, Trump stated on social media that business leaders worldwide said switching from quarterly to semiannual “would make business (jobs) even better in the U.S.”
Then-SEC Chairman Jay Clayton launched a review that year, evaluating the advantages and disadvantages of the quarterly system.
The report, however, acknowledged that issuing guidance “blinds management from seeing the bigger picture,” effectively perpetuating “short-term thinking.”
“We have tried to balance the pros and cons of quarterly reporting by addressing issues that are currently being considered by top officials in government and regulators,” officials said.
“In the end, like so many complex issues, compromises will have to be made, especially if we wish to encourage companies, large and small, to grow and prosper for all of their stakeholders.”
Current rules could be revised by either Congress or the SEC.
Quarterly Versus Semiannual
Various major economies presently have semiannual reporting standards. The UK, for example, required quarterly reporting from 2007 to 2014 but reverted to six-month reporting. Australia, Japan, Singapore, and other countries in the European Union also require listed companies to submit semiannual reports.
Conversely, several countries, including Canada, China, India, and Taiwan, maintain quarterly reporting mandates.
A chorus of companies and executives has advocated reforms because corporations are typically under pressure to beat Wall Street estimates.
“In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability,” they said.
The pair added that to meet quarterly earnings targets, companies often hold back on spending for technology, hiring, and innovation—even when external factors such as market volatility or weather distort their financial results.
Although he has not weighed in on the semiannual versus quarterly debate, Tesla CEO Elon Musk has criticized the quarterly process, specifically referencing earnings calls.
The essays concluded that although semiannual reporting improves financial reporting quality, it can also increase the cost of debt and operations. Additionally, less frequent reporting boosts capital investment.
“The results challenge existing beliefs by demonstrating an incremental improvement in financial reporting quality associated with less frequent reporting, and call for a reevaluation of existing reporting policies,” researchers said.
In January, Norway’s sovereign wealth fund, Norges Bank Investment Management—which manages $1.8 trillion in assets—championed semiannual reporting and ongoing material updates as sufficient.
