The Unseen Contributors to Earnings Announcements — Implications of Reduced Reporting

The conversation about quarterly earnings primarily revolves around businesses and investors, but altering the current system could unsettle a complete network of white-collar professionals, including legal advisors, communication experts, and data analysts.

Recently, a proposal by President Donald Trump to the SEC brought forth a question of whether scaling back earnings reports might benefit corporations. He emphasized that fewer reports would economize resources and permit executives to better manage company operations.

Contrary to the administration's unexpected trade strategies, mainstream corporate America found alignment with the president's suggestion. A survey by Nasdaq in 2019 revealed that a significant majority (three-quarters) of the 180 surveyed firms leaned toward adopting biannual reporting.

Sustaining quarterly earnings comes with financial burdens that many firms find onerous, as orchestrating each report can extend over weeks, employing numerous staff across departments like legal, accounting, and communications. While these efforts do not simply vanish into thin air, they support numerous white-collar positions that are already under duress from technology advances and an uncertain economic climate.

Potential Impacts on Professional Roles

If the push for reduced earnings reporting is realized, one must consider the repercussions for the myriad of white-collar professionals sustaining this system, particularly investor relations specialists and financial data experts.

Business Insider delved into insights from industry experts and scrutinized feedback from companies and trade groups in response to the SEC's 2019 inquiries into reporting frequency.

Is Less Reporting Really Less Work?

Investor relations and communication experts have a crucial duty in quarterly reports to clearly relate a company's narrative—covering financial outcomes, growth potential, risks, and strategic intentions—to stakeholders including investors and regulators.

However, Matthew Brusch, president and CEO of the National Investor Relations Institute, suggested that diminishing report frequency may not truly alleviate their workload. Investors are unlikely to cease their demands for information.

"Investors invariably seek more data, not less," noted Brusch, who anticipated that numerous firms might persist with quarterly reports even if given the option of biannual disclosures.

Maintaining the Status Quo

Many experts believe quarterly earnings may endure, contrary to theoretical wins for top executives like CEOs and CFOs, who envision gaining time for pivotal operations and strategic planning. In practice, even in places like the EU, businesses often continue with frequent reporting despite less stringent requirements.

Nasdaq's survey indicated that a typical firm spends upwards of 850 hours each quarter on these reports, equivalent to hundreds of man-hours quarterly. Transitioning to less frequent reports ostensibly grants time back, yet experts predict management won't limit business evaluations to semi-annual intervals.

Challenges and Beneficiaries

Those most affected might be independent contractors, like corporate lawyers and auditors, who are sporadically hired for earnings preparations. Reducing reports might lead these roles to diminish in necessity.

Responses to the SEC highlighted concerns, stating the significant diversion of resources and fees were often attributed to legal and accounting efforts.

Consequences for Data Providers

The modifications might influence entities that profit from the existing system, particularly financial data suppliers. An inquiry on LinkedIn hinted at potential growth for businesses dealing with alternative data as lesser reports could amplify demand for comprehensive, real-time insights.

Goldberg, formerly of Coresight Research, pointed out that while fewer earnings moments might benefit alternative data prospects, it presents pitfalls for sectors reliant on regular earnings for trade stimulation, like hedge funds.

Many hedge funds depend heavily on conventional resources for critical insights, with tools like Ravenpack's analytics using earnings calls to evaluate executive sentiment as a key component.

Finally, for hedge funds, earnings season remains a prime opportunity for financial gain, making any change potentially significant to their operations.