Trump advocates end to quarterly earnings reports
- President Donald Trump floated the idea Monday of companies no longer providing earnings report on a quarterly basis and switching to semiannual instead.
- The U.S. Securities and Exchange Commission later told CNBC that it is actively looking into that proposal.
- Supporters of the current system say it provides investors with timely opportunity as well as transparency about public companies.
President Donald Trump floated the idea Monday of companies no longer providing earnings reports on a quarterly basis and switching to semiannual instead.
The U.S. Securities and Exchange Commission told CNBC later Monday that it is actively looking into that plan.
"At President Trump's request, Chairman [Paul] Atkins and the SEC is prioritizing this proposal to further eliminate unnecessary regulatory burdens on companies," an agency spokesperson said.
Trump had initially raised the idea in a Truth Social post, saying it is "subject to SEC approval" and would "save money, and allow managers to focus on properly running their companies."
"Did you ever hear the statement that, 'China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis??? Not good!!!'" Trump said.
During his first term, Trump had asked the SEC to study the issue but no recommendations came of the matter.
The wisdom of quarterly reports has come under question before. In a 2018 op-ed piece for The Wall Street Journal, Berkshire Hathaway's Warren Buffett and JPMorgan Chase CEO Jamie Dimon advocated doing away with quarterly guidance, though not earnings reports.
"In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability," the pair wrote.
Current regulations require companies to report earnings on a quarterly basis, though providing forecasts is voluntary. The rules can be changed either from the Securities and Exchange Commission or could be altered by Congress.
Logistically, the move would not require support from Congress but rather just a majority vote on the SEC, where Republicans currently hold a 3-1 voting majority, with one open seat. The process likely would take six to 12 months, said Sarah Bianchi, chief strategist of international political affairs and public policy at Evercore ISI.
"Administrations have to varying degrees given policy steers to the SEC, and with Trump's directive this is now something that has to be taken seriously as a possibility," Bianchi, a former U.S. deputy trade representative, said in a note. "However, the SEC has also historically been able to operate with some measure of independence."
SEC Chair Paul Atkins has not spoken on the issue.
"If the effort at the SEC to reconsider quarterly reporting gains steam, it could also prompt conversations around when and how companies issue guidance and communicate with investors that would have important ramifications for public markets," Bianchi added.
Supporters of the current system say it provides investors with timely opportunity as well as transparency about public companies.
"When you weigh this out and put it on a whiteboard, the pros of quarterly reporting outweigh the cons," said Art Hogan, chief market strategist at B. Riley Wealth Management. "Having to wait six months for official results, I just think would cause more difficulties than it would add benefits."
While executives have come under some criticism for reporting misleading earnings, the use of generally accepted accounting principles — GAAP — has helped provide guardrails that ensure standardization. For that reason, U.S. reporting is considered among the most transparent and reliable in the world.
Despite Trump's comments about China, companies there have reporting requirements that are similar to the U.S. if not more stringent. Chinese companies must file quarterly earnings reports as well as semiannual and annual reports.
Companies listed on the Hong Kong exchange, however, only report every six months.
Trump's proposal would be more in line with practices in the U.K. and European Union, where companies are required to file semiannually but can issue quarterly reports if they choose.
But Hogan said the comparison between U.S. and European companies isn't valid.
"How many companies in the European markets have trillion-dollar market caps and are growing revenues at 60% a year or have gross margins that are north of 50%?" he said. "The investor is better suited to having more information than less frequent information."
Earlier this year, Norway's sovereign wealth fund proposed switching to semiannual reporting, reasoning that lengthening the time frame would allow companies to focus on the longer term. The Long-Term Stock Exchange trading platform also has supported less frequent reporting.
The White House declined further comment on Trump's post. CNBC has reached out to the SEC for comment.
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