August 28, 2018
I’ve had a number of people ask me my opinion of the Trump administration’s proposal to change Securities and Exchange Commission (SEC) reporting requirements so that companies only have to make reports semi-annually rather than quarterly. While I would say the switch would be good in principle, I would say it is not good now.
The basic argument is straightforward: companies that obsess on quarterly reports may neglect long-term planning for short-term profit targets. It is not clear to me that making reports semi-annual rather than quarterly will hugely change this story, but this is probably a step in the right direction. Also, since quarterly reports are often manipulated to hit profit targets (several studies have found implausible smoothness in earnings patterns), it is not clear they provide much real information in any case. So, it seems in the interest of conserving resources and paper, switching to semi-annual reports is a good idea.
My not-now qualification stems from the character of the Trump administration. Trump has made it abundantly clear that he views conflicts of interest and fraud as all part of the game. He has shown unprecedented contempt for the disclosure requirements that administrations of both parties have followed for decades. He has appointed numerous individuals with serious conflicts to top-level positions.
In this context, we cannot count on the SEC and other regulatory agencies to do their jobs. Investors will have to do their own policing of company books. Given this reality, more information is better than less information. The switch to semi-annual reporting should occur under the next administration, assuming it takes the rule of law seriously.
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