LIVE MARKETS-Europe implies little impact from financial reporting frequency

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EUROPE IMPLIES LITTLE IMPACT FROM FINANCIAL REPORTING FREQUENCY

With U.S. President Donald Trump's call for an end to quarterly reporting requirements for U.S. companies, Goldman Sachs looked to Europe for information on how it could matter.

In short, their research, headed by European strategist Sharon Bell, found that "quarterly or semi-annual reporting does not appear to have a material impact at the micro level" at least based on European companies.

Bell notes that in Europe, there is a 50/50 mix of STOXX 600 .STOXX companies reporting on a quarterly or semi-annual basis. In the FTSE 350, 95% of companies report just twice a year while almost all DAX stocks report quarterly. Most energy stocks report quarterly while most consumer staples companies report semi-annually.

Noting that one argument for semi-annual reports is that management could focus on longer-term investment and growth, Bell says: "It seems somewhat ironic that U.S. stocks have outshone European and UK companies in terms of most longer-term metrics - like growth rates, rates of investment and ROE - despite the requirement that they report quarterly."

Those in favor of quarterly reporting argue that it could add value by providing "transparency or confidence to investors, and by reducing the chance of problems building and going unnoticed by investors."

But one argument against quarterly reporting is that "it may detract from value by making managements more myopically focused on the next quarter's EPS numbers and hence forgoing the longer foresight necessary to invest and grow."

And another issue is that even when managers avoid the myopia and keep a longer-term focus, they may still be distracted by the resources and time required to produce quarterly figures and do investor and media calls.

So if quarterly reporting adds value via transparency and investor confidence or detracts from value by making managers more myopic, Bell reasoned that "this would likely show up in the valuation of companies or in their relative returns."

But within Europe, which the strategist sees as a natural experiment for examining those theories, she found no material valuation difference between companies based on reporting frequency, and no material ROE difference.

(Sinéad Carew)

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