In August of this year, President Trump made comments urging the Securities and Exchange Commission (SEC) to revise its rules on quarterly earnings reports. The current system has plenty of critics, with many claiming that it only serves to promote short term investment.
There was little coverage following Trump’s request that the SEC look into an alternative. Now as we approach the end of the year, it has been announced that the Commission will meet to explore changes to their current rules.
SEC: Six Month Earnings Reports a Possibility
In a tweet in August, President Trump revealed that he had been in discussions with the SEC, saying that “In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. “Stop quarterly reporting & go to a six-month system,” said one. That would allow greater flexibility & save money. I have asked the SEC to study!”
At the time, the SEC said it had taken it on as a “key consideration” but made no commitment beyond that.
This week the SEC finally indicated that it was moving on Trump’s request, saying that it will hold a vote to determine whether it asks companies and investors for feedback on the current system. While this is not a guarantee that any action will be taken, it is at least a step in the right direction that many investors and business leaders will be pleased with.
Potential Cost Savings and Better Investment Decisions
Quarterly reports lead the average investor to think in three-month cycles. This can undermine long term company plans and lead to unnecessary stock movement based on short term data. It is widely believed that moving to a six-month cycle will cause investors to better consider their stock sales and purchases.
For growing companies and those that are executing restructure plans, the benefits could be significant.
Changing the rules on reporting would likely reduce operating costs for companies, as they will no longer have to direct resources towards preparing quarterly reports, hosting investor calls, and fielding questions from analysts and the media.
The Securities and Exchange Commission vote will be made next week. A vote in favor will lead to a consultation period with public company executives and investors. More news is expected on this before mid-December.
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