The debate is not new. The causes and consequences of short-termism have been examined for decades by academics, commentators, lawmakers, and practitioners. Prominent figures such as Jamie Dimon and Warren Buffett have publicly criticized the short-termism culture. Their concerns are reinforced by a 2004 survey of financial executives showing that half were willing to forgo positive NPV projects to avoid missing quarterly earnings expectations1.
Although there is broad agreement that myopic corporate strategies harm investors and the market, it is not clear that ending quarterly reporting would solve the problem. Quarterly reporting and earnings guidance are associated with higher analyst coverage, greater liquidity, more transparent information, and lower volatility, all of which help cost of capital2, 3, 4, 5. When earnings releases become less frequent, information asymmetry rises and the risk of insider trading increases.
The United Kingdom and Europe offer recent natural experiments. When regulators ended mandatory quarterly reporting in 2014, firms did not increase CapEx or R&D spending, contrary to what would be expected if quarterly earnings truly induced myopic management6.
Furthermore, some practitioners and academics argue that companies would face less short-term pressure if more of their shareholder base consisted of long-term investors. From this perspective, firms seeking to attract such investors should reduce short-term guidance and place greater emphasis on long-term forecasts.