US plan to ease business earnings rules

Requiring public companies to report their earnings every three months has long been blamed for encouraging short-term decision-making by CEOs, who, it is argued, would rather cut back on long-term investing than deliver disappointing quarterly results. Donald Trump made this criticism during his first term as president. Paul Atkins, his choice to lead the Securities and Exchange Commission, is now to give listed firms the option of reporting only twice a year.

Will it make a difference? Britain turns out to have conducted the perfect controlled experiment. In 2007, under European securities regulations, public companies were required to issue “interim management statements” every three months; previously most published results only semi-annually. Then, in 2014, as recommended by the Kay Report on UK Equity Markets and Long-Term Decision Making, they were given the option to report only every six months, just as the SEC will propose for the US.

Studies have examined the impact of the British changes. First, quarterly reporting increased the number of share analysts tracking public companies, arguably improving scrutiny and accountability to investors of these firms. But there was no evidence that investment by British firms increased – though those who linked quarterly to short-termism expected it to. If short-termism is a problem, quarterly reporting is probably not the cause.

When British companies were given the option of switching from quarterly to six-monthly reporting, very few did so – though, among other things, there were cost savings to be made by reporting less frequently. Investors, it seems, insisted on updates as often as possible.

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