Six months isn’t long term – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

Robert Pozen, Senior Lecturer, MIT Sloan School of Management

From Wall Street Journal

President Trump tweeted on Friday that he had directed the Securities and Exchange Commission to study a suggestion from a business leader, later revealed as outgoing Pepsi CEO Indra Nooyi: “Stop quarterly reporting & go to a six month system.” The popular theory is that quarterly reporting discourages firms from making long-term investments.

But switching to semiannual reporting wouldn’t help. Find us CEOs with stockpiles of good, long-term projects that they are not pursuing—but that they would, if only they had three extra months to report earnings. Reporting every six months is nobody’s definition of “long term.” Besides, investors have waited patiently as Amazon, Netflix and many biotech firms have followed long-term strategies.

In 2007, financial reporting in the United Kingdom moved from semiannual to quarterly. Yet capital expenditures and research-and-development spending didn’t fall significantly over the next three to six years, according to a study from the CFA Institute Research Foundation. When the quarterly requirement was ended in 2014, investment by U.K. companies didn’t change.

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