Most businesses make quarterly reports in order to update stakeholders on the status of the company. A public company’s comprehensive quarterly report, designated SEC Form 10-Q, must disclose all relevant information to all interested parties on a timely manner. A company that fails to submit its quarterly financial results by the deadline must file SEC Form NT-Q, which provides reasons for the delay.
Although quarterly report filing is mandated, there have been debates over the past few decades as to the effectiveness of frequent financial reporting and concerns over providing excessive information to the public.
Two Obvious Benefits of Quarterly Reporting
Lower Cost of Capital – Investors become more confident in lending capital money to companies who are transparent and regularly provide financial reports.
Aids Short-Term Trading – Event-driven asset managers require access to information, which aids them in making trading decisions. They feed on company news – the frequent the reporting and the comprehensive the reports are, the better.
Two Obvious Adverse Effects of Quarterly Reporting
Strain on Management Resources – Making financial reports is a tedious process that needs time, focus and resources. According to reports, the National Grid estimates quarterly reporting drains management time up to one month each year.
Distraction for Long-Term Fund Managers – Asset managers who target long-term financial goals don’t really care much about a couple of months swings and shifts. Rather, they are more about the bigger picture, about the company’s financial journey in the next five, ten or twenty years.
Better Governance is Key
Regular reporting poses the risk of providing too much information and contributes to the noise. Allowing companies to report significant news when it happens, and not obliged them to make standard reports every time may help ease quarterly business woes.
But what companies need is better governance, analysts argued. The added that executives must shift from using quarterly filings merely as a crowd control tool; instead, they should start focusing on strategy and see short-term distractions from quarterly filings in a different light. Meanwhile, asset managers’ competence must measured on both long-term and short-term performance. Analysts believe that good governance, and not tinkering with reporting requirements is the key.