Prompted by a recent conversation with outgoing Pepsico CEO Indra Nooyi, President Trump tweeted that ‘In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. “Stop quarterly reporting & go to a six month system,” said one. That would allow greater flexibility & save money. I have asked the SEC to study!’

Such a change would bring the US into line with EU countries, who abandoned the requirement in 2013. Japan, however, has in the last decade moved away from bi-annual reports to a three-month schedule.

The suggestion has been greeted warmly by US business leaders, who believe that such a move would encourage both companies and investors to think in the long-term. Quarterly reports are commonly seen as a drain on resources, taking both time and energy to produce and explain or defend. Fund managers have in recent years complained about tight reporting schedules that lead executives to become blinkered to long-term goals. It has also been claimed that the sudden market reactions that follow quarterly reports benefit only hedge fund analysis and generate market instability. Such stock price instability recently prompted Elon Musk to take $50bn technology firm Tesla private, citing in an email to employees ‘the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term’.

However, dissenters point to an influential paper which discusses the implementation of just such a plan and provides a real-world example. From 2007 to 2014, UK businesses were required by the Financial Reporting Council (FRC) to produce performance reports every three months. These rules were subsequently abandoned. As illustrated by Nallareddy et al in 'Consequences of Mandatory Quarterly Reporting: The U.K. Experience', the imposition of a requirement to provide 'Interim Management Statements' in 2007, and the subsequent relaxing of the rules in 2014, provides a test case for the abandonment of quarterly reporting. Using a difference-in-differences analysis, the authors found that, 'the imposition of mandatory quarterly reporting has virtually no impact on firms’ investment decisions. Companies that voluntarily moved back from quarterly to semi-annual reporting after 2014 have experienced a reduction in analyst coverage, but no detectable increases in their levels of corporate investments'.

Report by James Bunney