Dive Brief:
- Nearly two-thirds (62%), of financial analysts and portfolio managers surveyed oppose replacing quarterly reporting with semiannual financial reports even though about the same share (63%) say the benefits of 10-Qs “exceed their costs,” according to a report on a survey released this month by the CFA Institute, a trade organization representing chartered financial analysts.
- About 70% of the 2,500 financial analysts and portfolio managers surveyed oppose giving companies the option to decide the cadence of their financial reports — flexibility that the Securities and Exchange Commission formally proposed last month.
- "Investors globally — not just in the U.S. — continue to view quarterly reporting as an essential feature of transparent, efficient and trustworthy capital markets,” said Matthew Winters, senior director of corporate disclosures and information advocacy at the CFA Institute in a press release.
Dive Insight:
Support for quarterly reports among analysts and portfolio managers runs counter to a new SEC plan proposed last month to give public companies the option to file semiannual financial reports on a new Form 10-S instead of quarterly reports, or 10-Q filings.
SEC Chair Paul Atkins said the plan — part of the Trump administration’s Make IPOs Great Again initiative — would reduce the rigidity of federal reporting standards and encourage companies to go and stay public. Last year President Donald Trump argued that the new rules would save companies money and allow managers to focus on properly running their companies.
But there is little evidence that investors’ demand for timely, comparable and broadly available information, as provided by quarterly reports, has diminished since it was first implemented in 1970, the CFA Institute report stated.
Quarterly reports support comparability across companies, equal access to information, analyst coverage, market liquidity, investor confidence and the efficient allocation of capital — characteristics that investors associate with a well-functioning capital market, the report stated.
“Removing such regulation, as with a load-bearing wall, could result in significant damage to the house supported by this regulation – that house being the U.S. capital markets,” the report stated.
The survey found some interest in looser reporting requirements. Of the analysts and portfolio managers surveyed, 82% said they would support the SEC’s rules allowing voluntary quarter reporting if semiannual reporting mandates were adopted as well. But just 32% of the respondents anticipated that companies would continue filing quarterly reports if it became optional.
When it comes to reporting form changes, 78% of those surveyed indicated they did not want to abandon the Form 10-Q filing requirement if quarterly reporting became voluntary. But 52% of respondents agreed that the SEC should adopt the new Form 10-S if semiannual reporting became mandatory.
Half of those surveyed said that any reduction in reporting frequency should actually require more extensive disclosures in interim reports to compensate for the longer reporting intervals.
According to the report, investors were mostly concerned that six-month reporting intervals would be too long in the current markets and could raise the cost of capital, increase stock volatility and create information asymmetries.
The biannual reporting framework may also complicate efforts to compare companies, reduce the frequency of dividends and increase the possibility of unequal access to company information, according to surveyed investors.
Reporting frequency reductions would not prompt companies or investors to make decisions based on a longer term view of the future, according to the respondents.
Instead, 85% of those surveyed said management incentives and compensation structures are the main incentives to take a long-term approach to decision making.
The survey was conducted in January.
