The U.S. Securities and Exchange Commission (SEC) is pushing a plan to scrap listed corporations' quarterly earnings reporting requirement and instead have them disclose financial information every six months. Corporations have previously raised sustained complaints that the quarterly reporting requirement "encourages excessive expense and short-term management."
According to Bloomberg on the 15th, SEC Chairperson Paul Atkins said at a recent press conference, "The current quarterly reporting system unnecessarily increases corporations' administrative expense and distorts long-term management judgment," adding, "We are reviewing an amendment to shift the disclosure cycle to a semiannual basis." In response, the U.S. Chamber of Commerce expressed public support in a statement, saying, "This amendment is a reasonable reform that eases the burden on corporations and shareholders," reflecting a broadly positive mood in business circles.
The quarterly earnings reporting requirement is a system that mandates U.S. listed corporations to disclose performance and financial conditions every 90 days, and corporations have long referred to it as "the Sword of Damocles," meaning "a knife hanging overhead." According to audit firm Audit Analytics, the expense corporations incur for external audits to comply with the quarterly reporting requirement exceeds an annual average of $2 million (about 2.8336 billion won).
A bigger problem is that corporations, fixated on meeting quarterly results, hesitate to invest from a long-term perspective. Sarah Williamson, head of the Boston management research institute FCLT Global, said, "It is common for a corporation to delay hiring or cut advertising expense to meet earnings forecasts," noting, "This effectively defers long-term growth." In fact, a survey conducted in 2004 by Duke University researchers of U.S. chief financial officers (CFOs) found that 78% of all respondents said, "We have sacrificed shareholder value to hit quarterly targets."
The short-term results-focused culture is said to have spread with the rise of former General Electric (GE) Chief Executive Officer (CEO) Jack Welch. After becoming GE CEO in 1981, he created the legend of a "company that meets its targets every quarter," presenting a model of "legendary management" by meeting Wall Street earnings forecasts for 80 consecutive quarters throughout his tenure.
However, in the process, Welch is assessed to have embedded performance pressure in the organization to an extreme degree, and the "rank and yank" policy of firing the bottom 10% in performance is also known to have emerged during this period. After Welch's departure, GE suffered a series of crises due to accounting fraud and investment failures and ultimately proceeded to be split into three companies, a development some analysts also attributed to being excessively fixated on quarterly reporting obligations.
Welch himself also expressed regret in an interview shortly before his death in 2020, saying, "Management centered on quarterly results was the dumbest idea in the world."
Some, however, warn that abolishing the quarterly reporting requirement could undermine market stability. University of Minnesota professor Salman Arif said, "In some countries that adopted semiannual reporting, investors tried to fill the gaps with other incomplete information, increasing stock price volatility," warning, "If information gaps widen, only institutional investors with superior data will benefit, raising the risk of semi-insider trading."
Columbia University professor Shiva Rajgopal also said, "One reason the U.S. capital market accounts for half of the world's total market capitalization is its high information transparency," adding, "Lengthening the disclosure cycle could damage investor confidence."
Meanwhile, President Donald Trump appears to be lending weight to the possibility of SEC reform. After Chairperson Atkins' announcement, Trump emphasized on his social media (SNS) Truth Social, "Corporations no longer need to report every quarter," adding, "This will not only cut expense but also allow management to focus on truly running the company."