NPR.
It is a time-honored tradition in corporate America.
Every three months, executives from public companies get on a conference call to talk about how much money they made in the last quarter.
And the calls are all kind of the same.
There's hold music.
Then an operator announces the call is starting.
Welcome to the conference call.
The CEO reads some prepared remarks.
And then executives take questions from Wall Street analysts.
The questions usually sound something like this.
Yeah, thanks very much, guys.
Appreciate all the color, as usual.
I guess I was hoping for some more color on your color.
Just wanted to get a little bit of color there.
It just seems a little bit... Could you maybe give us some color on that?
Thank you.
Thank you.
Thanks.
The color just drained from my face right now listening to that.
You weren't feeling inspired?
No?
Okay.
I live for quarterly earnings.
Yeah, it's not the most riveting stuff, but companies talking about their financial results is important for the stock market.
This information helps investors make decisions about where to put their money.
And if that investor is a company that manages a retirement fund, for example, then it's your money at stake.
But how often should companies be reporting their earnings?
President Trump is pushing regulators to get rid of quarterly earnings and release them just twice a year.
This is The Indicator from Planet Money.
I'm Darian Woods.
And I'm Waylon Wong.
There is evidence that less frequent reporting can be better in the long run for companies and their shareholders.
But there are also tradeoffs.
Today on the show, we give you some color on this ongoing debate.
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In the US, the regulator that oversees public companies is called the Securities and Exchange Commission, or the SEC.
It was created in the 1930s and back then generally companies only had to report their earnings once a year.
The SEC bumped up the requirement to twice a year in the 50s, and then it started requiring quarterly earnings reports in 1970.
This was in response to some companies that were hiding poor financial performance from their investors.
Rahul Washishta is a professor at the business school at Duke University.
He says earnings reports are fundamental to the stock market and the economy as a whole.
It allows for channeling the money to its correct destination.
And when you can make that happen, that's when you create the maximum amount of wealth in the economy.
That's when you make everybody better off.
And when you talk about I want to make sure my money's going to the right place, are we really talking about I want to make sure that I'm making the maximum amount of money on my investment?
You know, that's how every investor should think.
But in the process of doing that, what you end up doing is something very valuable in the economy.
When you make sure you are getting the proper return, what you also make sure your money is going to the right firm, which is going to make the best possible investments, create the best possible product and services from which basically everybody benefits.
So to hear Rahul explain it, there's a lot riding on these earnings reports.
Over time, these financial filings have also gotten more detailed.
Rahul says that decades ago, an annual report might be just 15 pages long.
Today, a quarterly report is typically double that length or more.
It covers stuff like how much debt companies have and are they involved in any lawsuits that might affect their bottom line.
There's a cost associated with all this paperwork.
That's one argument in favor of reducing how much companies should be releasing earnings.
In a social media post last month, President Trump said going down to every six months quote will save money and allow managers to focus on properly running their companies.
Another concern about quarterly reports is short-term thinking.
Rahu calls it managerial myopia, and he explains it this way when it comes down to most consequential decisions we make in the corporate world.
So think about planning to expand a new market in China or perhaps some other country.
Or perhaps billions of dollars of RD expenditures you're making to develop a new product or a new technology.
Now the consequences of those kind of choices, they're not going to show up in a quarter or two.
In other words, these decisions might not bear fruit for years.
But in a system of quarterly reporting, managers can get judged based on what happened just in the last three months.
Were profits up?
Were they down?
And this kind of thinking can make them too focused on quarterly performance.
What happens is they might become reluctant to doing what is right for the long run if it hurts the quarterly profits.
Rahul and some colleagues studied what happened when public companies in the US went from annual to semi-annual to quarterly reports.
This is over a 20-year stretch from 1950 to 1970.
The researchers found that as companies increased their reporting frequency, they pulled back their spending.
Annual capital investment fell by around 1.5 percent.
So to put it all together, the evidence for me, it was kind of an eye-opener.
It really clearly tells you that as you create these shorter performance measures, the quality of your long-term decision-making that declines.
The desire to encourage more long term thinking has created some strange bedfellows when it comes to potentially cutting back on reports.
Some climate focused investors think less frequent reporting could encourage companies to think more long term about sustainability.
Rahul says he likes the idea of moving from quarterly to semi-annual reports.
But there is also evidence to support keeping the current cadence.
One big argument in favor of quarterly reports is that more information benefits investors, whether it's a huge pension fund or an everyday person with an account on a platform like Robinhood.
When investors have information, they feel more comfortable making decisions.
That typically leads to more trading and that leads to more accurate pricing.
There's research showing that stock prices get more volatile when there is less frequent reporting.
Julie Bell Lindsay is really familiar with all the filings that companies have to make with the SEC.
She's the CEO of the Center for Audit Quality.
It's a professional association representing the people who audit public companies.
And Julie says one important thing to consider is what investors want.
A lot of times what investors want is what companies are going to do.
So there would be nothing stopping companies if institutional investors say that or any investors say that they want the 10Qs.
There's nothing stopping companies from continuing to do that.
Thank you, by the way.
That's jargon for quarterly report.
And Julie says that in the UK, for example, companies aren't required by regulators to file quarterly reports, but many do because investors ask for that information.
There's another potential option here, and that is continuing to report quarterly results, but in a shorter format than what's required by the SEC.
Many public companies in the U.S. already do this.
They put out a shorter earnings release with some headline numbers before they file their more detailed report with regulators.
In my view, that is when the market moves.
It's when that earnings release hits the market.
What is truly moving the markets and what is truly important for the investors, I think is at the heart of this discussion.
The SEC last considered getting rid of quarterly reports during the first Trump administration.
The agency got as far as collecting public comment, but the process fizzled out.
And now it's been restarted under the Trump administration's new leadership at the SEC.
Chairman Paul Atkins said last month that the agency is fast-tracking the process and could have a fresh proposal by early 2026.
This episode was produced by Julia Ritchie and engineered by Jimmy Keeley.
It was fact-checked by Sierra Juarez.
Our editor is Kate Kincannon and The Indicator is a production of NPR.
Thanks.
Good morning, everybody.
Congrats on the nice quarter.
Taking the questions.
Congrats on the quarter.
And congrats on yet another solid set of results.
Good morning, guys.
Nice quarter.
Thanks.
Hey, Tony.
Darian, I'd just like to say, great episode.
Congrats.
Great episode to you, too.
It's been a great quarter.
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