Now imagine approximately 4,000 chief monetary officers doing that — unexpectedly — each quarter. Welcome to earnings season.
For greater than 50 years, quarterly reporting has been the metronome of U.S. monetary markets. Like daylight financial savings or Thanksgiving arguments, it’s baked into our financial rhythm.
Each three months, public corporations should naked their monetary souls to traders, analysts, opponents and journalists hungry to scrutinize margins and future steerage.
However now, an outdated thought has resurfaced: ditch quarterly earnings and move to semiannual disclosures. At first look, the proposal sounds affordable.
President Donald Trump not too long ago resurrected the idea, echoing earlier musings from his first time period. “This can get monetary savings and permit managers to give attention to correctly working their corporations.”
However earlier than tossing 10-Qs right into a regulatory recycling bin, we should always ask: What precisely are we saving and what would possibly we be shedding?
Disclosure prices — or value of admission?
There isn’t a denying quarterly reporting is time-consuming, irritating and costly.
In accordance with the Financial Executives Research Foundation, common value of compliance and monetary reporting could be lots of of hundreds yearly, tens of millions for big corporations. This contains accounting and authorized charges, communications and investor relations groups that might employees a small regulation agency.
High executives spend earnings season prepping for landmines — fielding the identical analyst questions on loop, hoping a single eyebrow twitch doesn’t tank the inventory.
What was as soon as monetary reporting developed right into a quarterly Kabuki Theater: meticulously choreographed, emotionally restrained and fully performative — all for the advantage of markets that principally know the script.
Zoom founder Eric Yuan even outsourced the monotony to a man-made intelligence (AI) avatar. Are you able to blame him?
Whereas Securities and Exchange Commission (SEC) laws require disclosure of fabric data — comparable to news releases and investor presentations — there’s no rule mandating earnings investor calls, though it has turn into part of the quarterly proctology.
Earnings calls permit corporations to make clear outcomes, steer the narrative, handle expectations and provide a public discussion board to handle questions they legally can’t reply in personal, retaining everybody on equal footing.
Transparency isn’t free — however opacity is way costlier
Precise value of transferring to semiannual reporting just isn’t monetary, it’s informational.
Markets are oxygenated by knowledge. Decreasing disclosures and transparency means choking off the lifeblood, which retains traders knowledgeable and costs rational.
With fewer updates comes extra uncertainty — and better danger premiums, which translate into complicated capital prices. A wealthy body of academic research reveals when corporations disclose much less often, traders demand larger returns to compensate for elevated opacity. What’s saved on audit payments is misplaced on the buying and selling ground.
Apart from, the vocal advocates for ditching quarterly reporting – principally small, private-leaning corporations or billionaires with a passion for deregulation – aren’t precisely pleading on behalf of particular person traders.
This isn’t about democratization of investing. It’s about lowering scrutiny.
Whose time horizon, precisely?
One convincing argument in opposition to quarterly reporting is that it encourages “short-termism” – the concept corporations, keen to satisfy analyst estimates, minimize long-term investments simply to juice the subsequent earnings name.
There’s a nugget of fact right here. Some executives play video games to beat expectations, positioning bills, shifting revenues, managing accruals like monetary magicians.
However in the event you’re making unhealthy selections each three months, you’ll doubtless simply increase unhealthy selections each six. Apart from, if quarterly reporting is such a damper on long-term funding, somebody forgot to inform huge tech.
Amazon, Google, Meta – all report quarterly and handle to spend billions yearly on futuristic moonshots. U.S. company funding as a share of GDP stays sturdy, regardless of the “burden” of speaking about it each 90 days.
Much less frequent reporting disproportionately hurts particular person traders
Institutional gamers – hedge funds, personal fairness corporations,’ activist traders have deep analysis and comfortable administration chats … whereas particular person traders rely closely on quarterly firm disclosures for data on their investments.
If public disclosures decline, the sting tilts even additional towards these already holding the sting.
Desire a system that offers insiders extra room to maneuver and the general public much less perception and transparency into what’s happening? That’s China’s capital markets – which, regardless of having their very own quarterly disclosure guidelines, typically endure from lack of enforcement and monetary opacity.
Ask anybody attempting to untangle Evergrande’s steadiness sheet.
And sure, the European Union (EU) moved away from quarterly mandates. However 60–70% of large-cap EU corporations continue to report earnings quarterly, sustaining transparency for traders regardless of the absence of a authorized mandate.
In distinction, 30–40% of mid- and small-cap firms report semiannually, aligning strictly with minimal EU regulatory requirement.
Moreover, many firms maintain quarterly reporting to satisfy index inclusion or U.S. funding flows.
Does quarterly reporting want reform? Completely
Earnings steerage, not reporting, drives short-term considering. And as we speak’s edge isn’t timing; it’s tech.
AI instruments like Kensho and Alpha Sense let establishments parse sentiment earlier than transcripts hit the wire. Quant corporations react in milliseconds. Institutional traders mix these instruments with various knowledge to identify surprises earlier than they’re introduced.
Fewer studies simply widen that hole. Trim the method, not the precept.
Public markets are a social contract, searching for candor, not curtains
In finance, as in life, the scariest issues occur when the lights exit. Whether or not the principles change or not, what actually issues is what traders demand — and what markets are prepared to tolerate.
The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t essentially replicate the opinions and beliefs of Fortune.
