The Future of Financial Reporting: How Ending Quarterly Earnings Could Reshape Markets

The corporate financial reporting landscape is at a crossroads. A renewed bid to eliminate quarterly earnings reports—advocated by entities like the Long-Term Stock Exchange and supported by emerging academic insights—has sparked a critical debate about the role of short-termism in capital markets. While no legislative action has yet materialized in the 119th Congress, regulatory petitions and market experiments suggest a paradigm shift is underway. This analysis explores how ending quarterly reporting could reshape investor behavior, stock valuation models, and broader market dynamics, drawing on evidence from recent studies and industry trends.

The Behavioral Consequences of Quarterly Deregulation

Quarterly earnings reports have long served as a focal point for investor attention, creating a rhythm of expectations, surprises, and reactions that drive short-term price movements. However, research indicates that this cadence amplifies behavioral biases and liquidity dynamics. For instance, firms that terminate quarterly reporting experience a notable decline in liquidity, as stakeholders lose a key touchpoint for assessing performance [1]. This aligns with findings that institutional investors and analysts place significant value on the frequency and content of interim reports, even if they do not require full disclosure [2].

The absence of quarterly data could also exacerbate Post-Earnings-Announcement Drift (PEAD), a phenomenon where stock prices gradually adjust to earnings surprises over weeks or months [3]. Without regular reporting, investors may underreact to incremental information, prolonging mispricing. Meanwhile, behavioral biases such as first-impression bias—where analysts’ initial perceptions of a firm’s performance skew forecasts for years—could become more pronounced in a less frequent reporting environment [4].

Valuation Models in a Post-Quarterly World

Traditional stock valuation models, such as the Price/Earnings (P/E) ratio and EV/EBITDA, rely heavily on periodic financial updates to calibrate expectations. If quarterly reporting is curtailed, these models may struggle to maintain accuracy, particularly in sectors where frequent data is critical (e.g., technology or retail) [5]. Analysts might increasingly turn to alternative metrics, such as internal rate of return (IRR) or multiples on invested capital (MOIC), which are already prevalent in private markets [6]. However, these metrics face challenges in public markets due to their atemporal nature—e.g., a MOIC of 1.6x over six years implies a different performance context than the same multiple over three years [7].

Academic studies also highlight the role of semantic AI and large language models (LLMs) in adapting valuation frameworks. For instance, LLM-derived insights from earnings calls or management statements have shown promise in enhancing fundamental and entropy-based models [8]. Yet, the effectiveness of these tools depends on the availability of granular, timely data—precisely what quarterly reporting aims to provide.

Market Implications and the Path Forward

The termination of quarterly reporting could have divergent effects across firm sizes and sectors. Larger, high-visibility firms may benefit from reduced short-term pressure, enabling long-term strategic planning. Smaller firms, however, risk greater information asymmetry and capital cost penalties, as liquidity declines disproportionately [9]. This aligns with historical evidence showing a 5% average decline in firm value following mandatory quarterly reporting, particularly for smaller entities [10].

Regulators and market participants must balance these trade-offs. While reducing quarterly reporting could mitigate short-termism, it risks creating a vacuum in transparency. A hybrid approach—such as allowing firms to choose reporting frequencies while maintaining minimum disclosure standards—might offer a middle ground. Additionally, advancements in AI-driven analysis and alternative valuation metrics could help bridge the gap, provided they are rigorously validated.

Conclusion

The push to end quarterly earnings reports reflects a broader tension between short-term market demands and long-term value creation. While the evidence suggests liquidity and behavioral challenges, it also underscores opportunities for innovation in valuation methodologies and investor behavior. As the Long-Term Stock Exchange’s petition to the SEC progresses, stakeholders must weigh the costs of reduced transparency against the benefits of strategic flexibility. The future of financial reporting will likely hinge on adaptive frameworks that align with evolving market needs—and investor expectations.

Source:
[1] The Consequences of Abandoning the Quarterly Reporting [https://www.tandfonline.com/doi/full/10.1080/09638180.2023.2239298]
[2] The Deregulation of Quarterly Reporting and Its Effects on [https://link.springer.com/article/10.1007/s11156-024-01338-5]
[3] A Review of the Post-Earnings-Announcement Drift [https://www.sciencedirect.com/science/article/pii/S2214635020303750]
[4] Behavioral Biases of Analysts and Investors [https://www.nber.org/reporter-2020-02/behavioral-biases-analysts-and-investors]
[5] Financial Analysts' Use of Industry-Specific Stock Valuation [https://www.sciencedirect.com/org/science/article/pii/S0967542625000025]
[6] The Multi-Period Conundrum of Private Market Performance Metrics [https://caia.org/blog/2024/12/05/multi-period-conundrum-private-market-performance-metrics]
[7] Artificial Intelligence Models for Predicting Stock Returns [https://www.mdpi.com/1099-4300/27/6/550]
[8] The Real Effects of Financial Reporting: Evidence and [https://www.sciencedirect.com/science/article/pii/S1061951823000733]
[9] The Effect of Mandatory Quarterly Reporting on Firm Value [https://publications.aaahq.org/accounting-review/article/94/3/251/4028/The-Effect-of-Mandatory-Quarterly-Reporting-on]
[10] Accounting Valuation, Market Expectation, and Cross- [https://www.sciencedirect.com/science/article/pii/S0165410198000263]