Quarterly Reporting Works Very Well, Thank You
There has long been a debate as to whether quarterly reporting is the appropriate interval. Is it too short? And does this time between reports promote short-term thinking — and actions — that undermine long-term performance and growth?
Promoting long-term thinking is a noble idea. The return in terms of jobs and wealth creation could be a multiple of the current results. Many would benefit.
No, Thank You
But as noble as this idea may be, there is almost no support for it among investment professionals around the globe who rely on financial reporting to manage assets. This conclusion is based on a survey of our nearly 160,000 members that was prompted in part by request for comment on this topic by the Securities and Exchange Commission.
Specifically, the survey found the following:
- 76% of respondents believe that earnings releases generally include more non-GAAP measures than quarterly reports include.
- 84% of respondents rely heavily on quarterly earnings releases because these reports generally are issued before quarterly reports.
- 50% of respondents indicate that quarterly reports are more important to investors than earnings releases.
- 62% of respondents feel that meaningful differences exist in the information provided in earnings releases versus that provided in quarterly reports.
- 72% state that quarterly reports are more useful to investors because they provide structured information.
- 91% of respondents feel quarterly reports include incremental financial statement disclosures and management discussion and analysis.
- 75% of respondents feel that the incremental information compared with an earnings release can affect views about a company.
It’s difficult to conclude that investors are looking for changes in the way companies report. Furthermore, we detect few regional differences. Worldwide, investors are expressing comfort with the way things are. Nor are they sanguine on the SEC’s so-called supplemental approach, in which a company would use its quarterly report to supplement its earnings release. Some 82% of investors feel this approach would cause investors new difficulties.
An area in which investors did feel reporting frequency could be cut was with respect to guidance. A majority, albeit a slim one (52%), feel companies should stop offering quarterly guidance because it creates an undue focus on short-term results. And 40% feel companies should continue to issue quarterly guidance. These figures are largely unchanged from our 2008 survey, which found that 53% of respondents were against quarterly guidance and 42% were for it.
In a world in which new technologies are changing the use, creation, and timeliness of data, it seems antithetical for regulators to consider slowing down the transmission of information to investors. Timely and accurate financial information is the lifeblood of the capital markets and, hence, the world’s economy. Quarterly financial reporting creates a level playing field for all market constituents, including the buy side, sell side, individual shareholders, regulators, and policy makers. For this reason, CFA Institute does not agree with a move to semiannual reporting.
Promoting long-term thinking among the executives who lead public companies is an idea that is always in vogue. Although the SEC’s ideas on the subject did not find favor among investors, it nonetheless is to be applauded for bringing the issue to the fore, an idea that must be continuously evaluated.
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