Quarterly earnings reporting may soon become optional for U.S. firms—yet the vast majority of companies are unlikely to take advantage of lighter requirements as it could hurt valuations, investors and market participants say.
A plan to move from quarterly to half-year reporting was revived by President Donald Trump last year after he initially proposed it during his first administration. The U.S. Securities and Exchange Commission is expected to soon formally seek feedback and comments from the public for a proposal to remove the quarterly earnings reporting requirement.
Proponents argue that it is a way to help businesses focus on longer-term strategic priorities as well as reduce the cost and paperwork of being publicly traded, although investors ranging from giant hedge funds to smaller asset managers caution that companies that adopt the plan may face a backlash from investors.
“Any established company that makes this shift will pop up on the screens of active investment managers and be a candidate for being downsized or removed from portfolios, or have valuations reconsidered,” said Sam Rines, macro strategist at WisdomTree Asset Management. “We want, we need, more information, not less.”
While broadly supporting the widely anticipated administration proposal as a way to boost capital markets, JPMorgan Chase said it would continue to provide quarterly guidance to the market via conference calls with analysts and investors.
The bank did not immediately respond to requests for further comment.
Rines said he thinks the change may be “a tough sell” to corporate boards, as directors weigh the cost savings against the potential that their stocks are viewed by investors as being more risky.
Similar concerns surfaced at the SEC’s investor advisory committee meeting last month, when buy-side firms including billionaire Ken Griffin’s hedge fund, Citadel, and asset management giant Fidelity warned that scrapping quarterly reporting risked increasing market volatility and the cost of investment capital for those companies making the switch. They also said that regular quarterly reporting helps to ensure accurate market valuations. Citadel declined further comment, while Fidelity did not respond to requests for further comment.
“Our expectation is that the vast majority of companies will continue to report quarterly,” said Mike Reynolds, vice president, investment strategy at Glenmede, an asset and wealth management firm.
A spokesman for the SEC declined to comment on the timing of the proposal’s release, but added that Paul Atkins, the agency’s chair, wants the “market to dictate the optimal reporting frequency based on factors such as the company’s industry, size, and investor expectations.”
SMALLER COMPANIES MAY OPT FOR LESS FREQUENT REPORTING
The SEC has required publicly traded U.S. companies to report their earnings quarterly since 1970. Money managers who discussed the pending proposal with Reuters acknowledged that they may own companies overseas that only report twice annually, or private businesses that supply even less frequent updates on performance.
Smaller companies or those contemplating going public for the first time could be more willing to opt for semiannual reporting, some market participants said. Nasdaq argued in a white paper published last year that quarterly reporting is especially burdensome for small and medium-sized companies.
“Less frequent reporting can be particularly beneficial for small‑cap growth investors because it shifts focus away from short‑term noise and back toward the multi‑year value drivers that matter most,” said Jordan Stuart, investment director at Federated Hermes.
Stuart argues that companies in businesses like biotech, where innovation and research may take years to pay off, also may benefit since quarterly reporting can overemphasize less relevant metrics like cash burn or short-term trial results or timing.
SOME SAY MORE INFORMATION IS BETTER
One of the main arguments put forward by stock exchanges, investment banks and others in favor of a shift to semiannual reporting is that it might help stem the decline in the number of publicly traded U.S. companies. Since hitting a peak of about 8,800 in the late 1990s, that number has fallen to approximately 4,200, and academics and analysts lay some of the blame for the decline on costly and time-consuming paperwork.
But investors say even those smaller companies may still choose to opt for quarterly reporting, as a way to compensate for another big decline: that of analysts’ coverage of small-cap businesses.
Jack Ablin, chief investment strategist at Cresset Wealth, vividly recalls the headache of producing “dog and pony shows” every three months while working for a publicly traded firm. But viewing the proposal through the eyes of an investor, he adds, results in a more nuanced picture.
“As a portfolio manager, I know that more information is always better.”
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