Dinah Wisenberg Brin at ThinkAdvisor polled advisers on the SEC's proposal to let public companies report earnings twice a year instead of quarterly. Most of us were skeptical, and I told her why in an email.
Quarterly earnings reports are one of the few consistent signals my clients and I can use to help build portfolios. Semiannual reporting would widen the information gap between executives and investors. I had a client earlier this year who was deciding whether to hold or trim a position, and the trigger for that conversation was a disappointing earnings report that revealed a shift in the company's cost structure. Without that disclosure, we would have been flying blind for months longer.
For portfolio management and asset allocation, yes, this matters. Reduced disclosure frequency does not just slow the flow of data, it changes the quality of it. You cannot react to what you do not know.
I also acknowledged the other side. Quarterly reports are not perfect, and companies sometimes distort performance by managing the numbers to hit a three-month target. Semiannual reporting might ease that behavior, though the answer is not obvious. The proposal trades a known cost, less information for investors, against a hoped-for benefit, less short-termism in the boardroom. From where I sit, the known cost is larger.
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