Regulatory Shifts in Financial Reporting: How Reduced Earnings Frequency Could Reshape Markets

The financial reporting landscape is undergoing a seismic shift, driven by regulatory overhauls and political agendas. At the heart of this transformation is the debate over the frequency of public company earnings reports—a topic that could redefine investor behavior and valuation models. With the pushing to eliminate quarterly reporting in favor of semiannual disclosures, the implications for markets are profound. Let's dissect the evidence, the risks, and the potential rewards of this regulatory pivot.

The Regulatory Overhaul: From Quarterly to Semiannual

The Securities and Exchange Commission (SEC) has signaled a clear deregulatory direction under Chair , who has prioritized reducing “unnecessary burdens” on companiesSEC prioritizes Trump call to axe quarterly earnings^[4]. This aligns with 's renewed push to abolish the long-standing requirement for quarterly earnings reports, a move he argues would curb short-termism and align U.S. practices with those of ChinaTrump Proposes to Cut Quarterly Reports for Public^[3]. The rationale? Quarterly reporting, critics argue, forces executives to chase fleeting profits rather than focus on long-term innovation and sustainabilityKeep quarterly reporting - Brookings^[2].

Historically, the U.S. shifted from semiannual to quarterly reporting in 1970, a change that reduced the cost of equity capital by improving transparencyKeep quarterly reporting - Brookings^[2]. Now, the pendulum may swing back. The SEC has already extended compliance deadlines for portfolio reporting rules, giving regulators more time to evaluate the feasibility of less frequent disclosuresQuarterly vs Semi-Annual Earnings Reports^[1]. Meanwhile, the rescission of SAB 121 and the PCAOB's deregulatory moves underscore a broader trend of easing compliance pressuresQuarterly vs Semi-Annual Earnings Reports^[1].

Investor Behavior: The Double-Edged Sword of Frequency

paints a nuanced picture of how reporting frequency shapes investor psychology. Quarterly disclosures amplify market reactions, often leading to heightened volatility, particularly during high-sentiment periodsQuarterly vs Semi-Annual Earnings Reports^[1]. For instance, a 2024 study found that firms in the (DJIA) experienced sharper stock price swings during quarterly earnings seasons compared to semiannual reporting periodsQuarterly vs Semi-Annual Earnings Reports^[1]. This volatility is exacerbated by behavioral biases: investors tend to overreact to positive surprises and underreact to negative ones, distorting valuation models.

Conversely, reduced reporting frequency could lead to information asymmetry. A 2017 (TASE) study revealed that small-cap firms switching to semiannual reporting saw an average 2% stock price drop, while those retaining quarterly reporting gained 2.5%Quarterly vs Semi-Annual Earnings Reports^[1]. This suggests investors value timely data, even if it comes at the cost of short-termism. The UK's experiment with quarterly reporting (2007–2014) further highlights this tension: while analyst coverage and forecast accuracy improved, concerns about earnings “hysteria” and managerial myopia persistedKeep quarterly reporting - Brookings^[2].

Valuation Models: Adapting to a New Normal

Stock valuation models rely heavily on the cadence of financial disclosures. Quarterly reporting provides granular data, enabling analysts to refine forecasts and adjust for earnings revisionsKeep quarterly reporting - Brookings^[2]. However, this granularity also introduces noise. For example, upward or downward revisions in quarterly earnings forecasts can trigger abrupt shifts in stock valuations, as seen in the 2014–2024 DJIA analysisQuarterly vs Semi-Annual Earnings Reports^[1].

If semiannual reporting becomes the norm, valuation models will need to incorporate alternative data sources—such as satellite imagery or supply chain metrics—to fill the information gapSEC prioritizes Trump call to axe quarterly earnings^[4]. This shift could favor institutional investors with access to proprietary tools, creating an uneven playing field. Moreover, reduced transparency may increase the cost of capital, as seen in international markets where semiannual reporting correlates with higher debt and equity costsQuarterly vs Semi-Annual Earnings Reports^[1].

Case Studies: Lessons from the Past

The to quarterly reporting offers a cautionary tale. While it lowered capital costs and improved earnings predictability, it also entrenched short-termism, pressuring companies to prioritize quarterly results over long-term innovationKeep quarterly reporting - Brookings^[2]. Similarly, the UK's return to semiannual reporting in 2014 revealed mixed outcomes: while accruals quality improved, operational expenses rose due to reduced transparencyQuarterly vs Semi-Annual Earnings Reports^[1].

The TASE example is particularly instructive. When small-cap firms adopted semiannual reporting, their stock prices fell, reflecting investor skepticism about delayed disclosuresQuarterly vs Semi-Annual Earnings Reports^[1]. This mirrors concerns raised by financial experts that reduced reporting could enable accounting fraud or insider tradingSEC prioritizes Trump call to axe quarterly earnings^[4].

The Road Ahead: Balancing Transparency and Long-Termism

The SEC's deregulatory agenda and Trump's proposal face significant hurdles. Legal challenges under the Administrative Procedure Act and the SEC's mandate to provide “reasonably current” disclosures could delay implementationSEC prioritizes Trump call to axe quarterly earnings^[4]. However, if enacted, the shift would require investors to recalibrate their strategies.

For individual investors, the key takeaway is to diversify information sources and focus on long-term fundamentals. For institutions, the challenge lies in leveraging alternative data to maintain an edge. Meanwhile, companies must weigh the cost savings of semiannual reporting against the risk of eroded investor confidence.

Conclusion

The debate over is not merely regulatory—it's existential for how markets function. While reduced reporting could curb short-termism and lower compliance costs, it risks undermining transparency and inflating capital costs. As the SEC deliberates, investors must prepare for a world where information is scarcer but strategic thinking is paramount. In this new era, adaptability will be the ultimate asset.