BREAKINGVIEWS-Sparser earnings would only worsen market myopia

By Stephen Gandel

NEW YORK, Sept 10 (Reuters Breakingviews) - It’s often hard to make the case that less is more. An incipient stock-trading venue backed by a group of influential venture capitalists nevertheless argues that sparser financial disclosures would help capital markets. The Long-Term Stock Exchange argues that quarterly reporting encourages short-term thinking and keeps companies private for longer. Reducing the amount of available information, however, will only make the problem worse.

The LTSE, whose investors include Peter Thiel’s Founders Fund and Andreessen Horowitz, is petitioning the U.S. Securities and Exchange Commission to let thousands of U.S.-listed companies release financial disclosures just twice a year if they want, instead of the four that have been mandated since 1970. It points to the persistent decline in publicly-traded U.S. stocks, which have plummeted 50% over the past three decades, as evidence that the system is broken. Reporting requirements are costly, the bourse contends, and the frequency encourages managers to cater to shorter-term whims across Wall Street.

There’s little evidence, however, that the existing regime curbs corporate performance. Track enough interim goals, and soon enough it becomes long-term. And an abundance of privately available capital is a far bigger reason for the dearth of market debuts. Britain eliminated its quarterly communique rule in 2014, but the London Stock Exchange now has about a third fewer listed securities. Most UK companies also still update investors every three months anyway, albeit often with less detail than the six-month reviews.

More frequently available financial information may even curb myopia, according to research out of George Mason University. The study found that investors in markets with quarterly reporting are less obsessed with short-term performance. Additional data points, in fact, help smooth out seasonal fluctuations and provide better insight into longer-term trends. Moreover, there are plenty of companies like Tesla TSLA.O and Nvidia NVDA.O, which report quarterly but whose valuations are premised on far more distant prospects.

It’s hard to argue that obsessing over three-month financial spans is healthy. Extreme share-price reactions to, say, earnings that fall a penny short of the anticipated amount, make little sense. The fix, however, is to give shareholders more sway, not less information.

Eliminating, or at least gradually sunsetting, feudal dual-class share structures would be one helpful step. So, too, would enthusiastically supporting independent board chairs and honoring stockholder plebiscites, especially on pay. With more confidence in their ability to have a say, investors might be freer to focus on long-term value.

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CONTEXT NEWS

The Long-Term Stock Exchange said on September 9 that it planned to petition the Securities and Exchange Commission to eliminate quarterly financial disclosure requirements, giving all publicly traded companies the option to report results only twice a year.