NC State Experts Can Discuss Possible Changes to Earnings Report Regulations
Photo credit: Daniel Huizinga. Shared under a Creative Commons license.
President Trump has raised the idea of altering regulations that require publicly traded companies to issue quarterly earnings reports, instead allowing companies to issue the reports every six months. North Carolina State University experts can provide insight and analysis on the potential change, including what it may mean for investors, companies, and financial markets.
Srini Krishnamurthy, associate professor of finance, said “the efficiency of capital markets depends critically on timely information being made available to market participants, and the efficiency of markets is crucial because it leads to increased trust in market prices. Moving from quarterly to semi-annual reporting would reduce the reporting burden — and related costs — for firms. But this would also make information via financial statements less frequently available to investors, and make the market less efficient and exacerbate volatility in prices. If regulatory agencies propose changes to financial reporting requirements, it would be useful for them to clearly articulate their analysis of the pros and cons that are the foundations for their recommendation.”
Krishnamurthy can be reached at skrish16@ncsu.edu.
Richard Warr, professor of finance and associate dean for faculty and research, said “changing the required reporting periods from quarterly to semi-annual has to balance two competing pressures – the need for investors to have fairly up to date information about the company versus the costs that company incurs in providing this information. Finance research tells us that when the quality of the information about a company is poorer (or perhaps less transparent), the cost of raising capital for the company can increase. So many companies may prefer not to go to a semi annual reporting cadence because more frequent reporting will increase their financing costs. There’s not really a free lunch here.”
Warr can be reached at rswarr@ncsu.edu.
Joe Brazel, Jenkins Distinguished Professor of Accounting, notes that a tremendous amount of empirical research has studied quarterly reporting and investor responses to quarterly earnings.
“I would hope regulators considering a change would avail themselves to what these studies have found. In addition, regulators should examine how the 2014 move in the UK to semi-annual reporting impacted management behavior, investors, and other stakeholders. On the flipside, less frequent reporting could allow independent auditors to provide a higher level of assurance to investors on financial statements issued 6 months into the year. Currently, auditors only review or provide limited assurance for the first 3 quarters of a company’s financial statements (10-Qs),” says Brazel.
Brazel can be reached at jfbrazel@ncsu.edu.
