In the evolving landscape of corporate finance, the White House has recently suggested a transition from quarterly earnings reporting to semi-annual disclosures. This proposal aims to alleviate financial burdens for companies. However, it raises a critical question: what valuable insights might investors forfeit if such a change occurs?
Utilizing extensive data compiled by economist Robert Shiller, this analysis seeks to illuminate the significance of frequent earnings disclosures. The relationship between short-term earnings and long-term trends is pivotal for both investors seeking immediate gains and those with a long-term investment horizon.
Table of Contents:
The Implications of Earning Frequency on Investment Strategies
President Donald Trump’s proposition to reduce reporting frequency has sparked debate regarding the potential loss of crucial information for investors. By leveraging Shiller’s historical data from January 1970 until June 2025, this study examines how changes in quarterly earnings correlate with shifts in both six-month earnings and overall earnings trends. The trend is defined through a 61-month centered moving average, allowing for a comprehensive understanding of earnings trajectories.
Visual representations of these earnings trends illustrate a complex relationship. While three-month earnings exhibit greater volatility compared to six-month earnings, determining whether the former adds predictive value for long-term investors remains a challenge. Empirical analysis indicates that short-term investors, who closely monitor earnings fluctuations, could derive significant benefits from quarterly updates.
Insights for Long-Term Investors
Long-term investors primarily focus on maintaining a clear perspective on earnings trends. To evaluate the value of quarterly earnings compared to semi-annual reports, one effective method is to model the relationship between trend earnings and changes in both three-month and six-month earnings. Utilizing ordinary least squares regression allows for assessing the accuracy of these models through the R-squared statistic, where higher values indicate better predictive capability.
At any given moment, an investor is aware of half of the current trend in earnings, which constitutes the initial 30 months of a 61-month analytical window. They also possess either the latest three-month earnings, the most recent six-month earnings, or both. By assessing the change in trend earnings based on these variables, one can determine whether the inclusion of quarterly earnings data enhances predictive accuracy.
The Advantages for Short-Term Traders
For those engaged in short-term trading, the immediate changes reflected in three-month earnings can be particularly pertinent. Historical data indicates a strong correlation between past three-month earnings changes and upcoming three-month earnings shifts. This correlation underscores the persistence of quarterly earnings trends, as demonstrated through empirical analysis.
Charting this relationship further solidifies the findings, revealing that an increase in the frequency of earnings updates leads to improved forecasting accuracy. For example, when examining a model that links 12-month earnings to six-month earnings from a previous period, the introduction of three-month earnings significantly enhances the model’s predictive power.
Evaluating the Need for Frequent Reporting
In general, the principle that having access to more data is preferable holds true in investment contexts. The analysis of quarterly earnings reporting indicates that such disclosures provide valuable insights for investors. However, the costs associated with generating these reports cannot be overlooked.
The conversation surrounding reporting frequency necessitates consideration of both potential savings for companies and the possible drawbacks for investors. Reduced transparency in financial disclosures could lead to inefficiencies in the market, ultimately impacting economic performance.
Utilizing extensive data compiled by economist Robert Shiller, this analysis seeks to illuminate the significance of frequent earnings disclosures. The relationship between short-term earnings and long-term trends is pivotal for both investors seeking immediate gains and those with a long-term investment horizon.0
Utilizing extensive data compiled by economist Robert Shiller, this analysis seeks to illuminate the significance of frequent earnings disclosures. The relationship between short-term earnings and long-term trends is pivotal for both investors seeking immediate gains and those with a long-term investment horizon.1
