All the reasons Trump would be wrong to ditch quarterly earnings

His arguments, in a social-media post, were it costs too much and American managers focus too much on the short term because they have to report every quarter. He wants them to report every six months instead, something the Securities and Exchange Commission said it would give priority to. His contrast was with China, which, he claimed, has a multidecade view on how to manage a company.

He’s wrong in every possible way.

The most obvious error is to think that moving from quarterly to semiannual reporting will make managers think long term. If they had to report only every five years, perhaps there would be an argument (though massive downsides). But there’s nothing long-term about six months, and it’s clearly wrong to think such a move would make a difference.

The problem with the claim actually goes deeper: Companies aren’t excessively short-termist, contrary to the constant claims of critics of free markets. Companies can happily invest for the long run while reporting quarterly—and investors can focus on the long run while receiving quarterly progress reports.

For proof, just look at today’s economy. Big Tech companies are set to invest almost $400 billion this year in long-term artificial-intelligence projects, and quarterly reporting has been no barrier. Big Oil explores and builds multibillion-dollar wells and refineries while being publicly listed. And corporate investment overall in the U.S., at 10% of GDP last year, is higher than any time before quarterly reporting was introduced in 1970.

Indeed, often the stock market’s problem isn’t being too short-termist, but placing too much hope on the long-term. Share-price bubbles pushed companies to overinvest in fiber-optic cables in 2000, in hydrogen infrastructure in 2021 and, perhaps, in AI server farms today.

No need to take my word for it. The U.K. offered a perfect case study to examine quarterly reporting when it made it optional in 2014. There was no effect on investment or research spending for companies that switched to half-yearly reporting, suggesting they didn’t start to think more about the long term.

“That really undercuts one of the main arguments against quarterly reporting," says MIT senior lecturer and former fund-management executive Robert Pozen, who, together with two colleagues, studied the U.K. change.

Indeed, if quarterly reporting were such a huge barrier to companies, it’s odd that the U.S. market is thriving, while London is struggling to attract new listings or even hold on to existing ones.

It’s true that quarterly reporting is expensive. But it also saves companies money by reducing their cost of capital, as investors are willing to pay more for a stock if they know more about what’s going on. Some of the red tape could be cut—companies could still release the figures and have a call, but drop the costly 10-Q form, for example—but the basic principle of disclosure should be kept.

China, ironically enough, also requires quarterly reporting. The reason its companies are willing to invest so much isn’t a lack of transparency, but government intervention. State capitalism appeals to President Trump, who has partially nationalized chip maker Intel and expects to direct foreign investment pledged as part of trade deals. But it doesn’t so much lead to long-term investment, as misdirected investment.

Anyone who thinks China is better at allocating capital should rethink. Its wild overbuilding spree left the country with millions of empty apartments and a giant debt problem, while its government is publicly worrying about too much investment into electric cars due to local subsidies.

Sure, the world gets cheap electric cars (except the U.S. and Europe, which slapped them with tariffs for unfair competition). But overinvestment has led to massive overcapacity and driven down margins to such an extent that the government is now prodding carmakers to cut unprofitable production and stop selling below cost.

The problem is much wider: Chinese listed-company profit margins are below 8%, while in the U.S. they are approaching 14%. State-directed overinvestment is a significant part of the problem.

You might worry about corporate greed or the effect on the country of such high profit margins—but companies and shareholders have definitely done better from the U.S. approach.

The drawbacks of ending quarterly reporting are serious, too. The longer the time between reports, the more information available to be exploited by insiders—and the worse the situation for the ordinary investor without access.

The U.K. avoids some of this by requiring major issues to be reported immediately by companies. The U.S. doesn’t, so ditching quarterly reports would give insiders an extra three months to profit.

I’ve already mentioned the cost of capital, but it’s worth re-emphasizing: Less transparency should hurt share prices, by increasing uncertainty.

Perhaps the worst effect would be the shift of power from shareholders to managers. U.S. executives often forget that they work for the shareholders, and the requirement for a quarterly report helps to keep them accountable. This isn’t the checks and balances of the U.S. constitution, but shareholders shouldn’t want executives to hold all the cards—especially as regulators have favored management recently.

There’s one change Trump didn’t mention that’s well worth doing: Ditch earnings guidance. Companies that predict quarterly earnings create a huge incentive for their leadership to massage the numbers to meet their guidance, a truly short-termist approach.

Quarterly reporting could be made less onerous, but it shouldn’t be scrapped.