The debate over quarterly versus semi-annual earnings reporting has resurfaced, with President Trump suggesting a move to semi-annual reports
While US companies report quarterly, most international companies report semi-annually
Proponents of semi-annual reporting argue it reduces “short-termism” and could revive IPO markets, while critics warn of lessened transparency and increased potential for illegal activity
The discussion on how frequently publicly traded companies in the US should have to report earnings has come up once again. Just as he did during his first term, President Donald Trump floated the idea on Monday that companies should report their earnings every six months rather than quarterly. “This will save money, and allow managers to focus on properly running their companies,” Trump wrote on Truth Social.
As such, we thought we’d revisit reporting frequency around the globe, and what advocates and critics alike think about the prospect semi-annual reporting.
US Companies Report Quarterly While the Rest of the World Mostly Reports Semi-annually
Anyone that follows global corporate earnings is aware of one glaring difference between the way US companies report earnings results as compared to the rest of the world. While the SEC requires US companies to file earnings results quarterly, a majority of international governing bodies only require semi-annual filings (2x a year). It has been this way since the implementation of the Securities Exchange Act of 1934 empowered the SEC to require quarterly financial reports from US-listed companies.​
Source: Wall Street Horizon
In the Wall Street Horizon universe of 11,000 global equities, only 13% report twice a year, which makes sense as the majority of our coverage is of North American companies (62%). Of the names that report 2x year, only 1% are North American companies, a majority of which (72%) are American Depository Receipts (ADRs), broadly from the UK and Europe.
UK Case Study – From Semiannual Reporting, to Quarterly, then Back Again
To understand which of these options is best, it might help to look to a country that has done both. UK companies previously sided with the rest of Europe and reported semi-annually prior to 2007. Then from 2007 – 2014, UK companies were required to file quarterly, before moving back to semi-annual. Research from the CFA Institute showed that while the frequency of financial reporting had no material impact on levels of corporate investment, “mandatory quarterly reporting was associated with an increase in analyst coverage and an improvement in the accuracy of analyst earnings forecasts. Most will agree those are two very good things for investors, but some still continue to argue that they may not outweigh the issues of short-termism and the behavior around it, i.e. “quarterly earnings hysteria” as Larry Fink titled it, and “quarterly capitalism” referred to by Hillary Clinton.
CEOs themselves point to short-term earnings pressure from investors as the number one factor promoting short-termism:
Original data from this chart found on page 15 of the EY report
Pros of Semiannual Reporting
Proponents of less frequent earnings reporting, as President Trump is suggesting, are in favor of it for a few main reasons.
The first is that they believe quarterly reporting promotes short-termism. As mentioned above, BlackRock head honcho Larry Fink has been an outspoken advocate for semiannual reporting for this reason. Back in February 2016 he wrote a letter to 500 CEOs urging them to stop providing quarterly estimates.
That sentiment continued during President Trump’s first term in office, when JPMorgan CEO Jamie Dimon and legendary investor Warren Buffet wrote a 2018 op-ed pushing for the same. Less frequent reporting would help companies adapt a longer-term view, and help them focus on running their companies they stated.
Proponents also believe making this change could revive the IPO markets. The costly and time-consuming nature of having to list and maintain publicly traded shares and stand up to the rigor of SEC reporting requirements is often a major factor in companies’ decisions to stay private or sell themselves instead. We’ve also seen that the increased availability of private funding means companies don’t necessarily have to go public to get the capital they need (link IPO article). According to the Center for Research in Security Prices, the number of publicly traded companies in the US is about 3,700, down 17% from three years ago, and down nearly 50% from its peak in 1997.
Cons of Semiannual Reporting
One of the most frequently cited cons of fewer earnings reports is the lessened transparency and insights into company performance it would bring, something many investors and analysts rely on. Quarterly earnings reports are typically followed by earnings calls which allow analysts to ask questions to company management that they wouldn’t otherwise get the opportunity to.
There is also the concern that less frequent reporting could open the door for more illegal activity within corporations, as there’d be less check points during the year, and fewer chances for analysts to scrutinize financial statements. Professor Salman Arif from the University of Minnesota’s Carlson School of Management says, “If we want to reduce accounting fraud, reduce opportunities for insider trading, improve the strength of our capital markets, and allow companies to invest for the long run, I think more transparency is truly beneficial.”
The Bottom Line
Ultimately, the debate over earnings frequency boils down to a fundamental question about the primary purpose of public markets. Is it to provide the most transparent, up-to-date information for investors to make decisions, or is it to create an environment where companies are shielded from short-term market pressures to foster long-term growth and innovation? The UK’s experience demonstrates that there are measurable consequences to either choice. As U.S. regulators and business leaders revisit this perennial issue, they must weigh whether the potential gains in strategic focus for corporations are worth the cost of reduced transparency and accountability for the investors who fund them.