Why Trump wants firms to report earnings just twice-a-year
What's the story
US President Donald Trump has proposed a major change in the way public companies report their earnings. He suggested that these firms should be allowed to disclose their financial performance every six months instead of the current quarterly practice. The proposal, shared on social media, aims at reducing costs and enabling managers to focus on running their businesses more effectively.
Long-term perspective
Shift from short-term to long-term focus
Trump's proposal also seeks to shift the focus of companies from short-term gains to long-term sustainability. He criticized the current quarterly reporting system, saying it forces companies to operate on a short-term basis unlike China which has a long-term view of 50-100 years for company management. However, investor advocates and finance experts are concerned that less frequent disclosures could compromise transparency as companies may withhold crucial information for up to six months.
Risk assessment
Concerns over potential for accounting fraud
Professor Salman Arif from the University of Minnesota's Carlson School of Management warned that switching to biannual earnings reports could potentially open doors for illegal activities by companies, due to less scrutiny on their financial numbers. He said, "If we want to reduce accounting fraud, reduce opportunities for insider trading... I think more transparency is truly beneficial."
Regulatory response
SEC's stance on Trump's proposal
The Securities and Exchange Commission (SEC), the main regulator for stocks, has required companies to report their quarterly earnings since 1970. Despite Trump's call for less frequent disclosures, any change in the reporting frequency of US public companies would take time. In his first term, Trump had made a similar proposal but it was never taken up by the SEC. However, this time around, an SEC spokesperson said they would "prioritize" Trump's proposal to reduce unnecessary regulatory burdens on companies.
Challenges
Implementation timeline and industry reaction
Any change in the long-standing practice of quarterly earnings reports would require extensive consultation and debate. This means that even though Trump's proposal is being prioritized by the SEC, it won't be implemented anytime soon. The move has drawn mixed reactions from industry stakeholders with some supporting the idea while others raising concerns about its potential impact on transparency and market stability.