Trump Proposes Semi-Annual Earnings Reporting, Investor Advocates Worry Over Less Transparency and Potential for Accounting Fraud
Every ninety days, public companies across various scales present their earnings statements, providing investors with insights into their operational performance. This routine, executives often contend, is burdensome and costly, prompting a focus on short-term gains rather than strategic, long-term growth.
President Trump has voiced his support for this viewpoint, advocating for semi-annual reporting as a measure that would reportedly save money and allow managers to concentrate on operational efficiency. In a recent social media post, he argued: “Moving to bi-annual earnings reports will enable managers to devote more time to running their companies effectively. Have you ever heard the statement, ‘China adopts a 50 to 100 year management strategy for businesses, while we manage our companies on a quarterly basis’? This is not favorable.”
However, some investor advocates and financial experts have expressed concerns about such a change. Reduced disclosures could lead to diminished transparency as companies might withhold critical information for up to six months, they argue.
Professor Salman Arif from the University of Minnesota’s Carlson School of Management shares these reservations, stating that bi-annual reporting might create opportunities for illegal activities by companies due to reduced scrutiny. He emphasizes, “Increased transparency is essential for reducing accounting fraud, preventing insider trading, strengthening our capital markets, and enabling companies to invest for long-term growth.”
Since 1970, the Securities and Exchange Commission (SEC) has mandated that companies disclose their quarterly earnings four times a year. In addition to these reports, larger companies typically host investors’ calls where executives answer questions about performance and offer guidance on future expectations. These sessions can lead to significant share price fluctuations if a company’s results deviate significantly from investor expectations or if the company issues disappointing guidance—and conversely, substantial gains if the company performs exceptionally well.
Executives have long criticized this frequent judging, claiming it encourages short-term thinking as companies strive to appease investors every three months. The Business Roundtable, representing over 200 major US companies, has advocated for less frequent earnings disclosures, asserting that “earnings guidance often encourages an excessive focus on short-term profits at the expense of long-term strategy, growth, and sustainability.”
Finance experts caution that quarterly updates with investors serve as a crucial check on corporate behavior. Arif suggests that waiting six months for updates could lead to increased stock market volatility due to less available information and a higher likelihood of being surprised by news. He explains, “Disclosure is akin to truth-telling; it’s about revealing what’s happening behind the scenes. With fewer opportunities for disclosure, there are more chances for the few numbers that are reported to be manipulated.”
Despite President Trump’s push for less frequent earnings disclosures, any potential changes to the long-standing practice of quarterly reporting would require careful consideration and debate, taking time to implement. During his first term, similar calls for reduced disclosure of earnings were made but the SEC did not substantively consider the proposal. The SEC has yet to respond to a request for comment on this matter as of Monday. Any efforts to alter the decades-long practice of reporting earnings four times a year would necessitate extensive consultation and deliberation, with any changes unlikely to occur immediately.