White House Asks SEC to Entertain Idea of a Six-Month Reporting Schedule For Publicly-Traded Companies
In a recent tweet, President Trump announced that he has asked the Securities and Exchange Commission to consider moving the quarterly reporting to a six-month schedule for publicly-traded companies. The idea was brought to the president by way of the outgoing CEO of Pepsico, Indra Nooyi over a dinner held earlier in the month with multiple business leaders.
Although the idea is not far-fetched or even a new idea, many investors are not a fan of reducing the transparency, despite that reporting earnings on such a short-term basis like the quarterly reports is quite unproductive. NYU’s Stern School of Business accounting and finance professor, Baruch Lev believes in the six-month reporting schedule proposal, stating that reporting every three months has lost its relevance to investors.
Further reasoning behind switching to a six-month system is that it likely reduce distractions for management. A huge time expenditure is put into quarterly conference calls and reports.
Batruch Lev, Accounting, and Finance Professor, NYU Stern School of Business stated, “I was told by one CEO, I couldn’t believe it, but he told me he prepares for four days for the conference call with all kinds of focus groups with PR and others. I was convinced you mean ‘four hours?’ He said, ‘No, Baruch. Four days.”
There is a popular belief that the short-termism plays into ‘the earnings games’. The idea is that if it is required for companies to report quarterly, then the main focus will be on meeting market expectations or beating the forecast, which often results in taking gimmicky actions like cutting R&D.
More details and explanations on the idea of a six-month reporting schedule can be found in a recent paper co-authored by Professor Lev and Feng Gu, a professor at SUNY Buffalo, that was published by the CFA Institute.
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