GB791 Unit 10 Scholarly Accounting Paper Example

Keep the Quarter for Large Companies: A Unit 10 Scholarly Paper on Mandatory Quarterly Reporting

[Student Name]

Purdue University Global

GB791: Advanced Topics in Accounting

Unit 10 Scholarly Accounting Paper

[Instructor Name]

[Date]

The paper's position is the candidate's; the regulatory history and the studies cited are real.

Abstract

Critics of quarterly reporting argue that frequent reports push managers toward short-term decisions, and in 2018 and again in 2025 the President urged a move to semiannual reporting. This paper reviews the theory and three bodies of evidence: the American shift to more frequent reporting between 1950 and 1970, the European Union's quarterly interim statement mandate, and a Singapore listing rule that required quarterly reports only from firms above a size threshold. The evidence shows that frequent reporting can induce short-term behavior and that its net costs fall most heavily on small firms, while large firms' reports also inform investors about their peers. The paper proposes that the SEC retain quarterly reporting for large accelerated filers, allow smaller reporting companies to file semiannually and shorten the quarterly filing for those who remain.

Introduction

Few features of American securities regulation are as familiar as the quarterly report. Since 1970, the SEC has required public companies to file Form 10-Q for each of the first three quarters of the fiscal year, with unaudited financial statements reviewed by the auditor, a management discussion and other disclosures. Quarterly earnings calls, analyst forecasts and earnings guidance have grown up around it.

The debate over the requirement is usually framed as all or nothing: keep quarterly reporting for every public company, or let every company report semiannually. The evidence reviewed here supports neither side of that framing. It shows that the costs of frequent reporting are real, that they are concentrated among smaller firms, and that the benefits of quarterly information extend beyond the reporting firm to investors in its peers. A rule that distinguishes by size follows from that evidence.

Background

The SEC required semiannual reports in 1955 and quarterly reports in 1970. In August 2018 the President asked the Commission to study a shift to semiannual reporting, and in December 2018 the SEC issued a request for comment on earnings releases and quarterly reports, asking among other things whether companies should be allowed to choose their reporting frequency. No rule followed. In September 2025 the President again called for an end to quarterly reporting, and the SEC chair said the agency would take up the question.

Other markets have moved in both directions. The European Union's 2004 Transparency Directive required listed companies to publish interim management statements each quarter, and a 2013 amendment removed that requirement. Singapore's exchange introduced a listing rule in 2003 that required quarterly financial statements only from firms above a market capitalization of 75 million Singapore dollars.

The Evidence

The theory. Gigler et al. (2014) modeled how reporting frequency affects managers' choices. More frequent reporting gives the market earlier information, which disciplines managers, but it also exposes the short-term costs of long-term investments sooner, which can lead managers to give up projects whose payoffs arrive later. Which effect dominates depends on conditions the model specifies, and under some of them more frequent reporting lowers firm value.

The American evidence. Kraft et al. (2018) studied the transition of American firms from annual to semiannual to quarterly reporting between 1950 and 1970. Comparing firms that the rules forced to report more often against firms that were already doing so, before and after each change, they found an economically large decline in investment, most consistent with myopic management behavior. This is the strongest evidence for the critics. Its setting, though, is half a century old, before modern analyst coverage, institutional ownership and continuous disclosure.

The European evidence. Ernstberger et al. (2017) studied European firms required to move from semiannual to quarterly interim statements. Relative to matched control firms, they found an increase in real activities manipulation, such as cutting discretionary spending to meet short-term targets, followed by a short-term rise and then a decline in operating performance. The effect was stronger where investor price pressure was high and where the quarterly statements carried little information.

The Singapore evidence. A study of Singapore's size threshold (Kajüter et al., 2019) compared firms just above and just below it, a regression discontinuity design that offers unusually clean identification. They found that the requirement reduced the value of the small firms near the threshold by about 5 percent, consistent with quarterly reporting being a net burden for them, and found no evidence of informational benefits or of myopic investment around the threshold. They also found evidence that quarterly reports from large firms produced positive information spillovers to firms that did not report quarterly.

The Case for Keeping Quarterly Reporting for All

Defenders of the current rule make three arguments. Quarterly reports tie management's claims about results to financial statements reviewed by the auditor, which press releases alone do not. They allow investors to follow trends within the year and shorten the periods in which insiders know more than outside shareholders. And current reports on Form 8-K cover specific events but are no substitute for periodic financial statements. A move to semiannual reporting, on this view, would widen information gaps for every investor.

These arguments are strongest for large companies, whose results move markets and inform investors about suppliers, customers and competitors. They are weaker for small companies, whose quarterly reports are followed by few analysts and whose costs of preparation are proportionally larger.

The Case for Semiannual Reporting for All

The critics' case draws on Kraft et al. (2018) and Ernstberger et al. (2017): frequent reporting can reduce investment and encourage managers to manage real activities around short-term targets. It adds the direct costs of preparation and review, and it notes that companies wishing to report quarterly could still do so voluntarily.

This case has force, but the evidence it relies on comes from settings that differ from today's American market, and the cleanest modern evidence, from Singapore, found no myopic investment near the threshold. What the Singapore study found instead was a cost burden on small firms.

The best-identified evidence does not show that quarterly reporting makes managers myopic; it shows that small firms pay more for it than they get back.

Discussion

The evidence points toward a rule that distinguishes by size. For large accelerated filers, quarterly reporting provides information that investors use, both about the company and about others in its industry, and the costs are small relative to the company's size. For smaller reporting companies, the evidence suggests that the costs can exceed the benefits, and that their investors receive little additional information from a quarterly filing that few analysts read.

The SEC already distinguishes by size in many disclosure rules, using categories such as large accelerated filer and smaller reporting company. A rule allowing smaller reporting companies to elect semiannual reporting, while requiring them to file a current report for any material development between periods, would follow that existing structure. Large accelerated filers would continue to report quarterly. For companies that continue to file quarterly, the Commission could allow an earnings release containing the reviewed primary financial statements and a shortened discussion to satisfy the 10-Q requirement, so that companies do not prepare two overlapping documents each quarter.

The myopia concern, to the extent it applies to large firms, is better addressed by discouraging quarterly earnings guidance than by reducing reporting frequency. Much of the short-term pressure arises from the expectation that companies will meet forecasts they supplied themselves, which is a practice rather than a requirement.

Limitations

The proposal rests heavily on one study of one market with a size threshold far below the size of most American public companies. Whether the Singapore findings hold for American firms near the smaller reporting company threshold is an empirical question, and any rule change should be followed by a study of the firms that elect semiannual reporting.

Conclusion

The Commission should keep quarterly reporting mandatory for large companies and make it optional for smaller ones. The evidence that frequent reporting causes myopia comes mainly from older and more specific settings, while the best-identified modern evidence shows a net cost for small firms and information benefits that flow from large firms' reports. A size-based rule, together with a shorter quarterly filing, would keep the information investors use most while relieving the companies for which quarterly reporting costs most.

References

Ernstberger, J., Link, B., Stich, M., & Vogler, O. (2017). The real effects of mandatory quarterly reporting. The Accounting Review, 92(5), 33-60. https://doi.org/10.2308/accr-51705

Gigler, F., Kanodia, C., Sapra, H., & Venugopalan, R. (2014). How frequent financial reporting can cause managerial short-termism: An analysis of the costs and benefits of increasing reporting frequency. Journal of Accounting Research, 52(2), 357-387. https://doi.org/10.1111/1475-679X.12043

Kajüter, P., Klassmann, F., & Nienhaus, M. (2019). The effect of mandatory quarterly reporting on firm value. The Accounting Review, 94(3), 251-277. https://doi.org/10.2308/accr-52212

Kraft, A. G., Vashishtha, R., & Venkatachalam, M. (2018). Frequent financial reporting and managerial myopia. The Accounting Review, 93(2), 249-275. https://doi.org/10.2308/accr-51838