Trump Wants to Scrap Quarterly Earnings Reports. That Would Hurt Investors.

Moving to semiannual reporting will “save money,” President Donald Trump argued. (Getty Images)

Key Points

About This Summary

• Donald Trump suggested companies should report financial results semiannually instead of quarterly to save money.
• The SEC’s current quarterly disclosure mandate has been in place since 1970, and Trump previously suggested a change in 2018.
• A CFA Institute survey showed 59% disagreed with less frequent reporting, citing potential information leaks and market unfairness.

Companies should no longer be required to report financial results on a quarterly basis and should instead report every six months, President Donald Trump argued in a social media post Monday.

“This will save money, and allow managers to focus on properly running their companies,” Trump wrote on Truth Social. “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!!!”

The idea was “Subject to SEC Approval,” Trump said, but it wasn’t immediately clear whether the Securities and Exchange Commission was considering such a proposal. The SEC’s current quarterly disclosure mandate has been in place since 1970.

Barron’s has reached out to the SEC for comment.

Trump asked the commission to study moving to a semiannual reporting system in 2018 during his first term. The SEC opened a public comment period later that year, but the proposal never gained traction, including among financial analysts.

In a 2019 survey of the CFA Institute’s global membership, 59% of respondents disagreed that regulators should consider a change to uniform semiannual reporting, while 36% agreed.

The potential for leaks that undermine market fairness is a reason why respondents opposed the move, said Sandra Peters, the global head of advocacy at CFA Institute.

“Six months is a long time for leakage of information,” Peters told Barron’s on Monday. “So there could possibly be an asymmetry of information that’s provided to some investors over the others.”

While businesses may whine about the cost of compiling quarterly reports and the pressures of managing for quarterly results, it isn’t clear that less frequent reporting will improve capital formation for businesses. It certainly would hurt investors.

Trump’s idea would hamper the legions of investors and analysts on Wall Street, and Main Street, who base their stock selection on quarterly inputs. The market pricing of American stocks is widely seen as one of the most efficient of all assets, and is the gold standard among all value-setting mechanisms.

So along with the concern for information asymmetry mentioned by Peters, less frequent inputs will just degrade the relative pricing of stocks. You don’t have to be a quant investor to understand that comparisons of company and industry ratios for book value and price-to-earnings will become less useful.

Trump noted other countries allow less frequent corporate reporting and he argued businesses there suffer less from “short-termism.” It isn’t clear, however, that corporate decisions in places such as China or Japan produce better outcomes than in the U.S.

China’s opaque reporting contributed to the country’s ruinous overinvestment—and self-dealing—in residential real estate, which is a business familiar to Trump. And America has an answer for public market pressures: it is called staying private.

The deep pockets of venture capital and private equity have allowed firms such as OpenAI to stay private while it pours billions of dollars into cash-consuming ventures that have nicely outdistanced foreign rivals. America’s availability of public and private capital seems quite successful.

Meanwhile, there is a kind of experimental evidence on the question raised by Trump. Regulators in Europe phased in quarterly reporting for some companies two decades ago, and then phased it out in the face of industry protests.

Researchers in Germany recently examined the consequences for stock pricing and found the market value of companies tended to drop when their reporting was less frequent.

“The evidence from Germany reveals that deregulation reverses the positive effects of previously mandatory quarterly reporting requirements, increasing information asymmetry and decreasing firm value on average,” said Lars Hornuf, a finance professor at Dresden University of Technology who was the lead author.

Big, popular stocks were most affected, he notes, when they phased out quarterly reporting. Smaller firms benefited less from quarterly reporting requirements—perhaps because the costs are relatively higher for these firms.

Markets with more frequent information about securities seem more generous with valuations and more liquid. Do we really want to abandon that?

Write to Nate Wolf at nate.wolf@barrons.com and Bill Alpert at william.alpert@barrons.com