Partner Christine M. Fox and Associate David Saldamando weighed in on the potential effects of less frequent earnings reporting in the Barron’s op-ed “Earnings Reports Every Quarter? The Pros and Cons from Wall Street Insiders,” proposing that reduced reporting could have significant, market-wide impact on shareholders, investors, and the securities markets.

While proponents of less frequent reporting argue that it will get companies to think more long-term, Christine and David argue that reduced reporting may adversely affect shareholders.  Stressing that “for investors who commit trillions of dollars to U.S. public companies, nothing is more essential than access to accurate, timely financial information,” the authors note that a similar rule change was raised by former SEC Chair Jay Clayton in 2019 and then dropped after institutional investors and others raised significant concerns over the proposed rule change.

Christine and David contend that the SEC should listen to the concerns of investors that are heavily invested in the U.S. stock market, and that the markets “operate successfully because investors of all sizes and sophistication have equal access to company-specific information.”  They further assert that, if less frequent reporting is mandated, “smaller shareholders without the financial resources to fill in information gaps through their own investigation could be disadvantaged.”  As investors may be drawn to seek out less reliable sources of financial information, the authors surmise that the market speculation to follow may falter the strength of the U.S. markets: “If reporting is reduced, when companies do eventually release earnings information they have been holding onto for months, stock prices are likely to be volatile and trading volumes could be more concentrated around such releases, potentially driving up overall market volatility.”

Additionally, Christine and David argue that that reduced reporting may “create a longer runway for bad actors within publicly traded companies,” as fraudulent acts and statements would remain concealed for longer period of time, and that, with less frequent bars on trading on material nonpublic information, “bad actors could more freely trade on that information for longer period of time, at the expense of shareholders.”  The authors conclude that, while “proponents of semi-annual reporting raise two main points in support of their argument—short-termism and costs,” “both are too speculative, and neither seems to outweigh the potential downsides to investors of less frequent reporting.”