Background on Current Reporting Requirements
Since 1970, publicly traded companies in the United States have been required to report their financial results on a quarterly basis. This practice has been overseen by the Securities and Exchange Commission (SEC), which aims to ensure transparency and protect investors.
Proposed Changes by Paul Atkins
Paul Atkins, the president of the U.S. market regulator, has advocated for a minimal oversight approach and supported President Donald Trump’s proposal to eliminate quarterly earnings reports. In an opinion piece published in the Financial Times, Atkins stated, “The government should provide the minimum effective dose of regulation necessary to protect investors while allowing businesses to thrive.” He emphasized that these changes should not be driven by political trends.
Trump’s Initial Proposal and SEC’s Stance
In early 2023, Trump suggested on his social media platform, Truth Social, that changing the reporting standard would require companies to report their results semi-annually. He argued that this proposal, initially put forward in 2018, would reduce costs and discourage short-term thinking among publicly traded companies.
The SEC had previously sought public comments on potential changes in 2018 but ultimately maintained the existing regime. Now, however, the SEC appears to fully support Trump’s proposal, increasing its chances of success as the White House takes a more active role in shaping the Commission’s agenda.
Potential Impacts on Transparency and Market Volatility
Some investors have expressed concerns that delaying financial disclosures could reduce transparency and increase market volatility, making U.S. stocks less attractive. However, others have recently supported the idea.
Advocates for transparency warn that less frequent reporting might give companies more opportunities to conceal or postpone negative news. Conversely, investors argue that the stringent financial reporting requirements in the U.S. contribute to why American stocks trade at a premium compared to those in other countries.
Historical Context of Quarterly Reporting
It’s worth noting that U.S. publicly traded companies did not always report their financial results on a quarterly basis. The shift was mandated by U.S. regulators in 1970.
Key Questions and Answers
- What is the proposed change? The SEC, under the support of President Trump and Paul Atkins, is considering changing the reporting requirement from quarterly to semi-annual.
- Why is this change being proposed? Proponents argue that it would reduce costs for companies and discourage short-term thinking. They also believe it could make U.S. stocks more competitive globally by aligning with less frequent reporting standards in other countries.
- What are the potential concerns? Critics warn that less frequent reporting might decrease transparency and increase market volatility, making U.S. stocks less attractive to investors. There are also concerns that companies might have more opportunities to hide or delay negative news.
- What is the historical context? U.S. publicly traded companies did not always report their financial results on a quarterly basis. The shift to quarterly reporting was mandated by U.S. regulators in 1970.
