The debate will not be recent. The causes and consequences of short-termism have been studied by scholars, commentators, legislators, and practitioners for a long time. Prominent figures like Jamie Dimon and Warren Buffett have done it publicly criticized the culture of short-termism. Their concerns are reinforced by a 2004 survey of economic managers that found half were willing to forego positive NPV projects to avoid missing quarterly profit expectations1.
Although there’s widespread agreement that short-sighted corporate strategies harm investors and the market, it will not be clear that eliminating quarterly reporting would solve the issue. Quarterly reporting and earnings guidance are related to higher analyst coverage, greater liquidity, more transparent information and lower volatility, all of which have a positive impact on the fee of capital2, 3, 4, 5. As earnings releases turn into less frequent, information asymmetry increases and the chance of insider trading increases.
The UK and Europe offer current natural experiments. When regulators eliminated mandatory quarterly reporting in 2014, firms didn’t increase their capital expenditures or research and development spending, contrary to what can be expected if quarterly earnings actually resulted in management myopia6.
In addition, some practitioners and academics argue that firms would face less short-term pressure if a bigger portion of their shareholder base consisted of long-term investors. From this attitude, firms that need to attract such investors should reduce their short-term forecasts and place more emphasis on long-term forecasts.
