President Trump Wants Fewer Earnings Reports. Would Investors Win or Lose?

Key Points

• European companies are only required to report earnings twice a year.

• Moving to semiannual reporting would free up time and money for companies, and potentially reduce short-term thinking.

• It would also deprive investors of valuable information.

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Quarterly earnings reports might seem like a law of nature in the U.S. investing world, but not every publicly-traded company is delivering results every three months.

It's specifically a requirement of the Securities and Exchange Commission (SEC) and has been since 1970, but that could now change if the agency follows President Donald Trump's wishes.

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Trump is agitating for the SEC to change the reporting requirement from every three months to every six months. In a post on his Truth Social platform, Trump argued: "This will save money, and allow managers to focus on properly running their companies."

Reporting on a six-month basis is far from unusual. In the United Kingdom and European Union, reporting every six months is the standard, and there are good arguments for loosening financial reporting requirements.

Trump is also familiar with the constraints and requirements of running a publicly-traded company. He was previously at the head of Trump Hotels & Casino Resorts and is currently involved in Trump Media & Technology Group, the parent of Truth Social.

It's unclear if the change will happen, but the SEC is reportedly prioritizing Trump's suggestion. Let's take a look at the pros and cons of moving to semiannual reporting before discussing the effect on investors.

Image source: Getty Images.

The benefits of less frequent earnings reports

Trump is right that there's a clear cost to complying with the SEC requirements for quarterly reports, in both time and money.

Publicly-traded companies must file a 10-K following their fiscal year-end and a 10-Q for the three other quarters. Every three months, companies must write the report, confirm it's accurate, and hire an auditor to sign off on it.

There's also the concern that the requirement to report quarterly is encouraging a short-term mindset for company leadership and the investors on Wall Street. The idea is management teams will prioritize meeting or beating quarterly guidance, which will not always align with what's best for the company in the long run.

Of course, executives can ignore the vicissitudes of near-term share price swings as Amazon's Jeff Bezos famously did. But the pressure to meet expectations is clearly there.

Making the change would also likely encourage more companies to go public, as privately-held companies see reporting requirements as one of the major drawbacks of going public.

Why it could backfire

The reporting requirements in Europe and the U.K. show that plenty of large and successful companies report earnings only twice a year, and it's business as usual (though some businesses with large American investor bases, like ASML, still report earnings every quarter).

Notably, the S&P 500 (SNPINDEX: ^GSPC) has a track record of outperforming European indexes. In the past decade, the S&P 500 has climbed nearly 240%, crushing the 56% return of the European STOXX 600 index.

Of course, that's not simply because of the difference in reporting requirements, but it could reflect a different approach to investing and risk-taking. After all, the U.S. is also known for having a larger venture capital ecosystem. It's also given birth to nearly all of the dominant tech companies of the last generation, which also hurts the argument that quarterly reports encourage short-term thinking.

What it means for investors

Overall, moving from quarterly reporting to semiannual reporting seems like a net negative for investors, especially retail investors.

While it could encourage some business leaders to think more long-term and would save on reporting-related expenses, it will also deprive shareholders of valuable information regarding their investments. At a time when major issues such as inflation and tariffs can change quickly, waiting six months will give investors far less insight into the state of each company.

It also lowers the bar for accountability in both performance and financial reporting, as companies would only need to meet those standards twice a year, rather than four times a year. Additionally, such a change would make investors more reliant on third-party data like Wall Street analyst research, essentially putting retail investors at a further disadvantage against their institutional counterparts.

On this subject, investors and businesses are at odds. Investors want more information, while businesses resist being required to present it. That said, even if the regulation changed, some observers believe most companies would continue the practice of quarterly reporting.

President Trump could get his wish, but don't expect the change to be the boon to the stock market that he seems to think it will be.

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Jeremy Bowman has positions in ASML and Amazon. The Motley Fool has positions in and recommends ASML and Amazon. The Motley Fool has a disclosure policy.