End Quarterly Reporting

Reducing the regulatory burden on public companies would save time and money without negatively impacting investors.

Unlike in his first term, the second Trump administration has not thus far been characterized by its deregulatory efforts. On the contrary, some of the most controversial actions taken by the White House have been uses of the regulatory apparatus for partisan ends. From tariffs to immigration regulations, the executive has turned portions of the administrative state to its own purposes. This was most recently exemplified by the intemperate comments made by FCC Chairman Brendan Carr, ostensibly threatening ABC for the false statements made by Jimmy Kimmel on its network. But there may be a chance to buck this trend and return to the deregulatory regime of the first Trump term, and it was offered by the president himself.

Just the other day, in a post on Truth Social, Trump said that:

“Subject to SEC Approval, Companies and Corporations should no longer be forced to ‘Report’ on a quarterly basis (Quarterly Reporting!), but rather to Report on a ‘Six (6) Month Basis’. This will save money, and allow managers to focus on properly running their companies. 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!!!”

This possibility was mooted during the first term and considered by the SEC, but went nowhere in the formal rulemaking process. Now, however, the agency seems to be starting on the path to making this a permanent regulatory change, altering how public companies have been told to do business for decades. Many economic commentators have been highly critical of this idea, saying it would harm investors and reduce informational access, thus making markets less efficient and transparent. Trump is not the first to moot the idea that some quarterly reporting norms should change, though. In 2018, Jamie Dimon and Warren Buffett published a joint op-ed in the Wall Street Journal arguing for the end of quarterly earnings guidance, but not the end of reporting altogether. What the president is proposing is further enhancement of that idea. Contra the critics, it is an excellent proposal that would not meaningfully reduce informational access or hurt investors, while saving money and focusing companies on a longer-term outlook.

When quarterly reporting requirements were first applied to all public companies by the SEC in 1970, the world was a vastly different place. Corporate communications were limited to official press releases – often only covered by industry press that was not easily accessible to non-experts – and off-the-record discussions with analysts and market-makers. Stock prices were not available to the public in real-time, but were published in particular newspapers on a daily basis. These papers did not reproduce the price for every single publicly-traded stock, nor did they always publish information or analysis about these companies, except in significant or newsworthy events. The information environment for the average investor was infinitesimal compared to the situation today. Now, there are 24-hour news networks dedicated entirely to the markets, constant online updates, immediately-accessible information about businesses that is sourced from outside of the company itself, and the ability to trade directly at almost any hour of the day, in any market across the world. Quarterly reports provide a tiny fraction of the information available to investors to make decisions, dwarfed by the constant feed of communications coming from companies, analysts, and journalists. These alternative and more regular sources of information are far more important to investing decisions than are quarterly reports.

Another criticism of the idea is that these other resources do not create as much investor confidence as quarterly reports do. These government-mandated reports are reviewed by external auditors before publication, lending the imprimatur of legitimacy from a public accounting firm to the released facts and figures. Audited annual reports are a cornerstone of the American stock market, giving investors assurance that the company is not fudging its numbers or otherwise trying to hoodwink the public. Audit firms are highly compensated for this essential service and put in immense amounts of work to deliver their results. But quarterly reviews are not annual audits. The standard of evidence is far lower, the confidence thresholds are much higher, and fewer accounts are reviewed on a quarterly basis as compared to each year-end. Investors associate the presence of an auditor with the assurance level of an actual audit, even when that is not the case. Replacing quarterly reviews with semiannual reporting could allow auditors to treat the six-month report more on par with how they would audit an annual report, as it would free up significant time and effort during the year.

Likewise, removing quarterly reporting requirements would allow businesses and executives to focus more heavily on their actual goals instead of dealing with regulatory burdens. Reducing compliance costs for public corporations is good. It saves plenty of spending on employees, external auditors, and legal costs. It also saves immense amounts of time. Even though quarterly reviews are not handled with the same level of scrutiny as full audits, the paperwork and time burdens on corporate employees are significant. Four times per year, financial and accounting employees of public companies need to take time away from their ordinary jobs running a business to deal with auditors, answer detailed questions from them, and go through corporate records to find required evidence. If this was reduced by half, the time and labor saved would be meaningful. More time spent on actual business activities, not compliance ones, is good for business and good for the broader economy.

And that brings us to one of Trump’s most important stated rationales for the potential shift to semiannual reporting: shifting to a longer-term corporate and investing mindset. American business, if not American culture writ large, has been consumed by a plague of short-term thinking. Every decision is made with the quarterly earnings results in mind, even if it leads to potential missed opportunities in the long run. The need for immediacy in success is ubiquitous and counterproductive. Some companies have historically bucked this trend – notably Amazon, which re-invested heavily into its cloud computing and web services business, making it the driver of future profits even if it ate into current margins – but they are few and far between. Wall Street and the investment media ecosystem are just as 24/7 as the political news cycle is, leading executives to focus on the now over everything else. This puts America at a competitive disadvantage against our adversaries who have much longer time horizons culturally, politically, and economically. Ending quarterly reporting will only aid in shifting American corporate mindsets away from short-termism and incentivizing longer term thinking.

All of this bodes well for a future in which America’s biggest and most successful businesses can grow their operations and boost the economy, all while setting us up for an even brighter future through long-term investments. Reducing the regulatory burden will help push us in this positive direction, all without materially impacting the information environment. The SEC should take the president up on his suggestion; we would all be better off in a world in which the need for immediate gratification was diminished, even if only in the investment realm. After all, you need to start somewhere.