Short-Term Perspective and Quarterly Reporting – Any Correlation?

On August 17, 2018, President Trump proposed that public companies release their financial statements semi-annually instead of quarterly. While some business leaders support this proposal, others worry that it could undermine transparency in financial markets. He asked the Securities and Exchange Commission to assess the current quarterly reporting system.

The Push for Semi-Annual Reporting

According to President Trump, the idea of switching to a six-month reporting system came from a business leader who believed it would improve the business climate and create more jobs in the United States. Prominent executives like Berkshire Hathaway founder Warren Buffett and JPMorgan Chase & Co. CEO Jamie Dimon have also supported less frequent corporate reporting. They argue that a long-term strategy is vital for economic growth and job creation. At the same time, quarterly reporting can lead to an unhealthy focus on short-term earnings at the expense of long-term growth and sustainability.

The Case for Quarterly Reports

Transparency in financial markets is essential for shareholders and other stakeholders, as public companies need to communicate their financial performance in a timely manner. However, not everyone agrees with this viewpoint. Some investor advocates, like Sandra Peters from the CFA Institute, argue that reducing the reporting frequency would only limit the information available to investors. Decreasing the frequency of financial reports could potentially hide critical performance metrics from shareholders for longer periods.

The public companies with short-term perspective reduce innovation opportunities and diminish investor protection in capital markets. The IPOs of the companies has been reduced which results in fewer opportunities for investors to create opportunities in their investment accounts. However, transparency in financial markets is an essential element for shareholders and other stakeholders. The public companies need to communicate their financial performance in a timely manner. This information should not result in hiding financial performance metrics from shareholders long time.

Striking a Balance

To address concerns about myopic loss aversion, public companies could consider avoiding earnings estimates for the next quarter. Such approximations can put undue pressure on companies to meet short-term targets. Additionally, earnings-based compensations can create conflicts of interest and encourage executives to focus on short-term goals.

In conclusion, while there is a debate over the ideal frequency of corporate financial reporting, the focus should be on promoting transparency and striking a balance between short-term and long-term perspectives. Ensuring that companies prioritize long-term growth and sustainability without sacrificing transparency is crucial for the health of financial markets and the economy as a whole.

Disclosure: I do not have any of the securities mentioned above. This article expresses my own views, and I wrote the article by myself. I am not receiving compensation for it. I have no business relationship with any company whose security is mentioned in this article.