The SEC’s proposal to replace quarterly reporting with twice-yearly reporting has a limited fan base in the financial analyst community, new research reveals.
Among 2,500-plus respondents to a survey of chartered financial analysts and portfolio managers by the CFA Institute, 62% opposed the proposal. Even more (70%) opposed granting issuers broad flexibility to choose their own reporting frequency, another element of the proposal.
The vast majority (84%) of those polled said that allowing companies different or flexible reporting frequencies will make comparability between companies and between industries more difficult for investors.
“Respondents emphasized the importance of comparability and consistency across companies and industries,” the CFA Institute wrote in its research report.
The survey was conducted in January and formally released in June.
Underscoring that analysts prefer more reporting over less reporting, 82% of respondents agreed that if semiannual reporting is mandated, voluntary quarterly reporting should be allowed. But only 32% expected that the U.S. companies they invest in will continue to report quarterly if doing so becomes optional.
If Form 10-Q is abandoned, as contemplated by the SEC proposal, and voluntary quarterly reporting is done solely through earnings releases, 57% of respondents said they would expect to receive less information relative to earnings releases today.
Half of the survey respondents said a reduction in reporting frequency should require more extensive disclosures in the semiannual reports to compensate for the longer reporting interval.
The CFA Institute said it received 722 comments from survey respondents about the frequency of financial reporting. One, typical of comments supporting the retention of quarterly reporting, said, “Incremental information allows markets to price securities more efficiently. Additionally, less frequent disclosure could increase the incentive for market participants to seek material nonpublic information, further undermining investor trust.”
Another noted that quarterly reporting helps analysts better gauge the future trajectory of revenue drivers, and that with so much of the stock market now weighted toward the mega-cap technology stocks, “we need as much clarity and information symmetry as possible.”
Among the comments from those who supported lower-frequency reporting, one respondent said that “management would be provided more flexibility to pursue long-term strategic initiatives if quarterly reporting became optional.” Another of the same variety said: “Between preview season, earnings season and recap season, there is barely any time left in a given quarter for conferences, roadshows and true fundamental analysis.”
Some other survey results:
- 74% of respondents expressed concern that with semiannual reporting, important information, particularly negative information, would be released in a less timely manner.
- 56% of respondents said they would be concerned that company management teams would be afforded greater ability to take advantage of insider information with respect to their own purchases and sales of stock.
- 47% of respondents said they’re concerned that companies may change to paying dividends semiannually if they are reporting semiannually.
