SEC moves closer to ending quarterly earnings requirement

The Securities and Exchange Commission is preparing a proposal to get rid of the requirement for publicly traded companies to report quarterly earnings, the Wall Street Journal reported Monday.

That would mean companies would likely only have to share results twice a year, which would have pros and cons for companies and investors.

Most companies don’t love having to report earnings four times a year and would prefer going down to two, said John Blank, chief equity strategist at Zacks Investment Research.

“The quarterly reporting is just getting to be a very expensive exercise,” Blank said. “And it would free up thousands of hours for their finance teams to do other things.”

That could include focusing on long-term strategies. The quarterly churn can encourage companies to prioritize short-term performance. Bank said the information coming out every three months can also be noisy.

“House building would be a good example — you get two, three months of bad weather and then suddenly it sounds like the housing market’s turning down, but it’s really not. They’re going to pick it up as soon as the weather is over,” he said.

But that so-called noise can still be important information for investors. And Jessica Wachter, a finance professor at the University of Pennsylvania’s Wharton School and a former SEC chief economist, said however clunky they are, quarterly earnings make it harder for companies to hide details they don’t want the public to see.

“To me, that’s more of a rationale to require it than to not require it,” she said.

Wachter said transparency is important — publicly traded companies are public, by name.

“After all, the corporations are owned by the investors,” she said.

That means both institutional and individual investors.