The U.S. Securities and Exchange Commission (SEC) is currently reviewing a proposal from the current administration to discontinue mandatory quarterly corporate earnings reports. While the underlying intent to reduce short-term market focus is acknowledged as a ‘good idea’ by some financial experts, a compelling counter-argument suggests the proposed shift in reporting frequency is moving ‘in the wrong direction.’ Instead of transitioning to annual or semiannual disclosures, the SEC, according to one perspective, should embrace the capabilities of Artificial Intelligence (AI) to facilitate monthly, weekly, or even real-time earnings releases, fundamentally reshaping market dynamics and investor transparency.
The Case for Accelerated Disclosure
The core of this argument, as articulated by financial commentator Barry Ritholtz in ‘The Big Picture,’ is that ‘more frequent reporting makes the data less significant.’ Counterintuitively, reducing reporting frequency from quarterly to annual or semiannual does not diminish the focus on short-term earnings management; rather, it ‘intensifies it.’ Ritholtz likens a single annual earnings release to ‘Christmas,’ becoming ‘a huge event filled with hoopla and volatility.’ Even semiannual reporting risks becoming a ‘hyper-focused earnings-management festival.’ This perspective echoes a call Ritholtz made in 2018, urging the SEC to ‘Report earnings monthly, with the goal of eventually moving to a near real-time, daily, fundamental update.’ He emphasized then that ‘Technology is improving to the point where business intelligence software and big data analyses will make this automated. Indeed, some companies already do much of this internally.’
Ritholtz’s firsthand experience from an asset management firm in the late 2000s and early 2010s illustrates the pressure. He observed ‘what the pressure of quarterly reporting does to a company that only issues its performance report four times a year.’ The intense focus on numbers every three months fostered an ‘unhealthy obsession among clients and employees alike.’ When his firm launched in 2013, they offered clients ‘real-time access to see exactly how they were doing, whenever they wanted,’ with the caveat, ‘You now have 24/7 access to see your returns, tick-by-tick — but please don’t, it will make you crazy.’ This real-time access, he notes, ‘completely defused the hoopla around performance reporting.’
AI: Enabling the Real-Time Vision
The feasibility of such a dramatic shift in corporate reporting is now underpinned by the rapid advancements in Artificial Intelligence. Ritholtz points out that in the 2010s, AI was in its ‘IBM Watson playing Jeopardy’ era, predating the current generation of sophisticated models like Claude, Gemini, ChatGPT, Grok, and Perplexity. Today, AI is ubiquitous, with capabilities ‘everyone carries around in their pockets.’ This technological leap transforms the idea of automating real-time earnings reports from something ‘fantastical a decade ago’ into something ‘no longer unimaginable – it has become obvious.’ AI can process vast datasets, identify trends, and generate reports with unprecedented speed and accuracy, making continuous, granular financial updates a practical reality for Corporate America.
The Perils of Less Transparency
Historical precedent and recent market events underscore the risks associated with reduced reporting frequency. In 2014, the United Kingdom reduced its mandatory reporting from quarterly to semi-annual, a change that ‘saw no benefit.’ Critically, there was ‘no increase in long-term investments after mandatory quarterly reports were dropped.’ Research by Robert Pozen, Suresh Nallareddy, and Shivaram Rajgopal, cited in the source, confirmed that ‘the frequency of financial reports had no material impact on levels of corporate investment.’ However, their study also found that ‘mandatory quarterly reporting was associated with an increase in analyst coverage and an improvement in the accuracy of analyst earnings forecasts.’
Less frequent disclosure, according to Ritholtz, ‘only widens the information asymmetry between insiders and investors,’ inevitably leading to ‘even more insider trading as non-public information becomes more valuable.’ This, in turn, causes ‘price discovery to deteriorate even further than it already has,’ and markets will experience ‘regular tsunamis of volatility’ instead of unpredictability. The recent ‘blowups in private credit’ serve as a stark warning, illustrating ‘what happens when reporting is less frequent, transparency is lacking, and information exchange between those managing these firms and their owners or investors is highly limited.’ These private companies, including private-credit managers, BDCs, and interval/tender funds, typically report to their shareholders annually, and have experienced ‘notable redemptions, markdowns, defaults, and even portfolio blow-ups over the last couple of years.’
A Phased Transition to Enhanced Disclosure
To mitigate the risks of short-termism without sacrificing transparency, Ritholtz suggests an alternative to simply ending quarterly guidance: companies should ‘unilaterally stop giving guidance.’ This would halt ‘the entire gamesmanship of beating last quarter’s company earnings guidance.’ More broadly, the ‘owners of corporate America, aka public shareholders, have the right to know how well the companies they own are doing,’ including fundamental data like sales, revenue, and profits. The objective should not be to make public companies resemble private ones, but rather to ‘generate more information about private and public companies so that investors can make informed decisions about risk.’
A gradual implementation strategy is proposed: companies that volunteer to move to monthly, then weekly, and eventually real-time reporting could be granted ‘safe harbor protection from the SEC (for a short period) against shareholder litigation.’ Over an estimated ‘5-ish-year period,’ all companies would transition to real-time earnings reports. This phased approach, enabled by the current state of Artificial Intelligence, offers a pathway to a more transparent, informed, and potentially less volatile market, where the constant flow of data defuses the speculative frenzy often associated with infrequent, high-stakes reporting events.
