President Donald Trump has asked the Securities and Exchange Commission to study if it should allow public companies to report earnings every six months, rather than quarterly. Earlier this month, Elon Musk argued that being a public company puts “enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term”. So he said he would take Tesla private. The question is whether quarterly reporting fuels short-termism and makes going public unappealing.
Trump’s move comes at a time when public markets are in retreat. We have seen “unicorn” companies such as Uber staying private even as their value exceeds a billion dollars, notes John Authers in the Financial Times. The availability of private capital from a few of the wealthiest citizens has made going public less attractive, reducing the scope for retail investors to benefit directly from corporate and economic growth. But eliminating quarterly reports could also “reduce transparency” for investors, says Gina Chon on Breakingviews. “Data and comments made by executives in the regular earnings exercise can help shareholders make better decisions earlier.”
Actually, “evidence on the merits of less frequent reporting is inconclusive”, says the FT. Investment is thought to suffer if companies focus too much on the short term, but a study of UK firms showed no significant impact on investment levels when they switched from biannual to quarterly accounting. The short-termism problem really lies in companies’ habit of issuing earnings projections. This guidance gives companies an incentive to massage the figures, and supplies “the targets around which short-term investors try to make fast bucks”.