Is two better than four?

The worst part of school was getting a report card (that, and the swirlies). Any student worth their pencil shavings would jump at the opportunity to reduce the number of reports they had to bring home.

Many publicly traded companies feel the exact same way—and the SEC might give them what they want.

The Wall Street Journal reported yesterday that the SEC could file a proposal as soon as next month to eliminate mandatory quarterly earnings reports, and give companies the option to file just two reports per year. It’s the latest call for change to financial reporting requirements, which began back in September when the Long-Term Stock Exchange first floated the idea, supported by President Trump.

If and when the regulator does make that proposal, it will also open up a 30-day public comment period for Americans to make their thoughts known about whether or not publicly traded companies should get off the hook for quarterly updates.

Some people will highlight the pros of twice-a-year reports:

• Building quarterly reports is costly and time-consuming
• The burden of frequent reporting dissuades companies from going public, limiting widespread access to investment opportunities
• Reporting earnings every quarter keeps management too focused on the short term, but reducing reports will turn attention to building long-term shareholder value
• Other markets (including Europe and the UK) have allowed public companies to choose their reporting frequency for ages, and the world didn’t end

Some will point out the cons of cutting financial reporting in half:

• Everyday investors who rely on quarterly reporting for insights will be left without the data needed to make informed investment decisions
• Quarterly reports are accompanied by earnings calls, which also provide analysts the opportunity to question management and uncover helpful details about company finances
• The transparency of quarterly reports encourages investors to put their money into markets, confident that they can accurately evaluate their investments—reducing reporting could potentially reduce capital allocation

There are plenty of opposing opinions about mandatory quarterly earnings, with such luminaries as Warren Buffett and Jamie Dimon chiming in with their thoughts on the issue a few years ago. The debate is only just beginning, but the days of enjoying must-watch, market-shaking earnings reports every three months may soon be coming to an end.—MR