Recent discussions from the White House have proposed shifting the reporting frequency for public companies from quarterly to semi-annual. This suggestion has raised significant concerns among investors regarding the potential loss of essential financial information. The key question is whether reducing the reporting frequency compromises the quality of information available to investors. This article examines the implications of such changes, supported by extensive data.
Utilizing long-term data compiled by economist Robert Shiller, we analyze the value of quarterly earnings disclosures.
These insights are particularly relevant for both long-term investors and short-term traders. While potential savings from less frequent reporting are evident, it is essential to consider if these savings outweigh the benefits derived from more frequent updates on financial performance.
Table of Contents:
Understanding the Value of Quarterly Earnings
The proposal to transition from quarterly to semi-annual earnings reports was advocated by President Donald Trump, who emphasized the associated cost and time savings for companies. However, investors are left to question whether this change would result in a detrimental loss of critical information. To address this concern, we examine earnings data spanning from January 1970 to June 2025, a period including the implementation of mandatory quarterly earnings reporting by the Securities and Exchange Commission.
Analyzing the Earnings Data
In our analysis, we focus on the relationships between three-month earnings, six-month earnings, and the overall trend in earnings, defined using a 61-month centered moving average. Our objective is to determine if knowledge of quarterly earnings changes enhances an investor’s ability to predict long-term earnings trends.
Visual representations of the data show three-month earnings depicted in green, six-month earnings in red, and the trend in blue. While three-month earnings exhibit more volatility compared to their six-month counterparts, the extent to which these quarterly figures can aid long-term investors in forecasting remains to be fully assessed.
Implications for Long-term and Short-term Investors
For investors focused on long-term strategies, the additional data from quarterly earnings can provide valuable insights into market trends. To evaluate the significance of quarterly earnings, we model the change in trend earnings influenced by both three-month and six-month earnings changes. By comparing the accuracy of these models, we utilize the R-squared statistic as a gauge for fit; higher values indicate better predictive capabilities.
Results and Findings
Our findings reveal that including the three-month earnings change enhances the model’s fit, as evidenced by an increase in adjusted R-squared from 0.098 to 0.126. Although neither model displays remarkable fit, the addition of quarterly earnings data appears to provide a more accurate prediction of long-term earnings trends. Further statistical measures, such as the Akaike and Bayesian information criteria, support this conclusion.
Conversely, short-term investors can significantly benefit from quarterly earnings reports. The persistence of quarterly earnings changes indicates a strong correlation with subsequent earnings shifts. This relationship is evident in our analysis, where the model explaining twelve-month earnings using six-month earnings boasts an R-squared of 0.699, improving to 0.953 when incorporating three-month earnings data.
Weighing the Pros and Cons
While the argument for reducing the frequency of earnings reports is rooted in cost savings for companies, it is crucial to consider the potential repercussions for investors and the overall market. A reduction in reporting frequency could lead to decreased transparency, limiting investors’ access to timely information. This may hinder market efficiency and affect investment decisions.
As regulators contemplate changing the reporting requirements, they must carefully evaluate both the financial savings for companies and the associated risks for investors. The long-term implications of less frequent reporting could be detrimental, as the lack of transparency may ultimately erode the reliability of financial markets.
Utilizing long-term data compiled by economist Robert Shiller, we analyze the value of quarterly earnings disclosures. These insights are particularly relevant for both long-term investors and short-term traders. While potential savings from less frequent reporting are evident, it is essential to consider if these savings outweigh the benefits derived from more frequent updates on financial performance.0
