President Donald Trump’s next target: revamping a Wall Street tradition.
The president said US companies should be required to report earnings every six months instead of every three. Trump, who raised the idea on Truth Social, said doing so would save companies money and allow managers to spend more time running their business.
Meanwhile, market experts were split on the idea, highlighting the benefits the change would bring to companies along with the challenges it would pose for investors, writes BI’s William Edwards.
How and when companies report earnings has become a topic of debate in recent years. High-profile executives like BlackRock’s Larry Fink, JPMorgan’s Jamie Dimon, and Warren Buffett have all criticized parts of the earnings process, saying it incentivizes short-term thinking among investors. Trump first suggested a change in 2018.
As companies stay private for longer, anything that softens the blow of becoming a public company could also convince more businesses to make the jump.
Still, Fink, Dimon, and Buffett didn’t suggest reducing the number of earnings reports. Their earnings issues revolve around the forecasting that executives provide. Future projections can lead to knee-jerk reactions from investors that send a stock skyrocketing or plummeting. That can incentivize management to chase short-term wins rather than a more sustainable long-term strategy.
But tweaking earnings and disclosures also raises questions about transparency. That’s particularly concerning for retail investors, who don’t have the same resources as their professional counterparts that are willing to shell out big for all kinds of wonky datasets.
A corner of Wall Street benefits from earnings
One CFO I spoke to shared an illuminating reason quarterly earnings likely aren’t going anywhere.
As annoying and expensive as earnings reports can be for companies, they represent big business for those facilitating the trading they spark.
Banks, broker-dealers, and exchanges earn fees from trading, and nothing sparks a market feeding frenzy quite like a big earnings beat or miss. Earnings forecasts, as painful as they are for companies, can also give investors more reasons to trade, which is good for business.
So while public companies might want a break from earnings, others view them as a key catalyst keeping people trading.
Think of it like the weekly injury report in the NFL. (Stay with me here.)
Coaches hate having to disclose their players’ injuries publicly. In a show of protest, Bill Belichick famously listed Tom Brady on the injury report for years despite him being healthy.
Still, the league requires it. Why?
Because it’s key information that gambling sites use to accurately set betting lines for games. Without knowing who is or isn’t playing, sportsbooks wouldn’t feel comfortable taking bets on games.
I’m not suggesting that investing and sports gambling are an apples-to-apples comparison. (One is clearly more serious; I’ll let you decide which.)
However, it’s easy to see how earnings and injury reports both provide information that’s crucial to keeping the market built around their industries running.
