President Donald Trump made headlines with a recent social media post advocating a switch from mandatory quarterly reporting to less frequent reporting requirements, likely semi-annually. Given the source, the proposal has predictably drawn criticism. But, contrary to some reactions in the media, eliminating the requirement does not ban companies from reporting quarterly.

What Would Change—and What Wouldn’t?

If firms no longer had to file quarterly earnings reports (Securities and Exchange Commission Form 10-Q), they could still provide quarterly updates if they believed investors value them. In fact, many firms already provide extensive voluntary disclosures, from earnings guidance to investor presentations. 

Importantly, investors would not be “kept in the dark” if the SEC relaxed the frequency of reporting mandates. Material events would still have to be disclosed promptly through Form 8-K filings. Corporate boards and audit committees would continue to oversee financial reporting and could ensure that shareholders continue to receive relevant and timely disclosures.

Recent research finds that eliminating the quarterly reporting requirement does not eliminate the practice. When the United Kingdom repealed its quarterly reporting requirement in 2014, fewer than 10% of firms stopped providing quarterly reports in the first year. That’s consistent with the idea that firms will supply information when investors demand it, regardless of a mandate. As time passes, voluntary interim reporting will likely decrease as firms determine the appropriate nature and frequency of voluntary disclosures.

The Burden vs. Payoff of Quarterly Reporting

Quarterly reporting can be burdensome, especially for smaller firms. For public companies that aren’t yet generating significant revenue, time-consuming 10-Qs provide limited new information to investors. As such, capital-constrained firms must divert scarce resources to preparing reports investors are likely to ignore. Directing those resources toward managing business operations or capital investments would better serve these firms and their investors. 

Beyond compliance costs, frequent reporting can distort managerial incentives, leading to a prioritization of short-term accounting performance over long-term value creation. At the same time, business cycles, seasonal fluctuations and accounting requirements (such as impairment testing) operate on longer horizons, compromising the usefulness of quarter-to-quarter comparisons and limiting the comparability of quarterly financial statements.

Academic research reinforces these concerns. One study finds that the U.S. shift from annual to quarterly reporting mandates during 1950–1970 led to reduced investment, particularly in industries where investments take longer to generate earnings. 

Evidence from Europe points to similar outcomes. Here, the authors find that the adoption of quarterly reporting requirements increased real earnings management (e.g., cutting investment) to meet quarterly benchmarks and decreased long-term operating performance. These studies suggest that quarterly reporting mandates may lead to myopic managerial focus on short-term accounting results at the expense of long-term performance.

Rethinking Flexibility in Reporting

A move to less frequent reporting (e.g., semi-annual) would allow boards and audit committees flexibility to determine the frequency and format of interim disclosures most appropriate for their shareholders. For some firms, this could mean continuing with full quarterly reports. Others may choose to issue periodic updates via quarterly press releases or earnings guidance, rather than full Form 10-Q filings. 

Such flexibility would reduce repetitive and boilerplate information while freeing management to share what is most relevant to the future of the business. Prior research finds that SEC filings have grown substantially longer and less readable over time, doubling in length to over 50,000 words between 1996 and 2003, resulting in useful information being buried in tedious, irrelevant disclosures. Less frequent and more flexible reporting could improve the balance between regulatory requirements and investor needs. 

Conclusion

Quarterly reports mandated by SEC rules (i.e., 10-Qs) provide useful information for some firms but are less informative (and more burdensome) for others. Eliminating the mandate would not necessarily deprive investors of valuable information. Nor would it prevent firms from issuing voluntary quarterly reports. We believe relaxing the quarterly reporting requirement by moving to a semi-annual requirement and/or reducing the complexity of interim reports would reduce costs, mitigate managerial short-termism and give boards the discretion to serve their shareholders in the most effective and efficient way.

This post was originally published in Poole Thought Leadership.