Quarterly reporting is often attributed to corporate myopia, an overemphasis on meeting short-term profit expectations at the expense of long-term value. Most U.S. companies have investment cycles that are measured in years, not quarters, and investors often value stocks on even longer earnings horizons. In this context, reporting frequency does little to change managerial behavior, while incentive structures – especially executive compensation cycles – place much greater pressure on short-term decisions.
The question for financial analysts is whether reducing reporting frequency would improve decision-making in the long term or simply weaken transparency and market efficiency. The evidence shows that this would not be the case, and that such a shift would likely harm liquidity and reduce the reliability of the information available to the market.
Looking back at the short-term debate
The debate is not new. The causes and consequences of short-term thinking have been explored for decades by academics, commentators, legislators and practitioners. Prominent figures such as Jamie Dimon and Warren Buffett have done so publicly criticizes the short-term culture. Their concerns are reinforced by a 2004 survey of financial managers that found half were willing to forego positive NPV projects to avoid missing quarterly profit expectations.1.
While there is broad agreement that short-sighted business strategies harm investors and the market, it is not clear that ending quarterly reporting would solve the problem. Quarterly reports and earnings guidance are associated with higher analyst coverage, greater liquidity, more transparent information and lower volatility, all of which improve the cost of capital2, 3, 4, 5. When earnings releases become less frequent, information asymmetry increases and the risk of insider trading increases.
The United Kingdom and Europe offer recent natural experiments. When regulators ended mandatory quarterly reporting in 2014, companies did not increase capital expenditures and R&D expenditures, contrary to what would be expected if quarterly reporting really led to short-sighted management.6.
Furthermore, some practitioners and academics argue that companies would experience less short-term pressure if a larger share of their shareholder base were made up of long-term investors. From this perspective, companies seeking to attract such investors should reduce short-term advice and place more emphasis on long-term forecasts.
Such a shift in strategic focus and disclosure toward longer-term performance creates a virtuous cycle: a cycle in which companies that win the interest and support of investors with longer horizons ultimately strengthen management’s confidence to make value-adding investments in the future of their businesses..
Sarah Keohane Williamson and Ariel Babcock, FCLTGlobal (2020)7
Paradoxically, a 2016 study found no difference in long-term investment levels between companies that published long-term forecasts and those that provided only short-term guidance.8. This highlights the lack of consensus on how disclosure practices influence managers’ horizons.
A logical question follows: what is a long-term horizon for business strategy? If the goal of reducing reporting frequency is to curb short-termism, it is reasonable to wonder whether extending the reporting interval by three months would meaningfully influence managerial decision making.
When the investment horizon exceeds reporting cycles
As a first way to approach companies’ investment horizons, I classified all U.S. publicly traded companies using the Industry Classification Benchmark (ICB) and used each sector’s two-year average ROIC revenue as a benchmark for payback periods. This approach provides a practical, albeit simplified, measure of how long it takes for companies to recover invested capital under stable conditions.
Figure 1: ROIC, ROIC turnover and P/E analysis.
Source: Bloomberg data and proprietary analysis (full table attached).
My analysis shows that the average weighted ROIC for US publicly traded companies is roughly five years, with industry averages ranging from about three years in the lowest quartile to 22 years in the highest quartile. The sample includes 3,355 publicly traded US companies, grouped into 42 ICB sectors and ranked by quartile.
The longer the payback period (ROIC turnover), the less impact a three-month shift in reporting frequency is likely to have on corporate behavior. Managers would still be under pressure to avoid short-term performance declines when initiating positive NPV projects; the definition of “short term” would simply shift from three months to six months.
Another take on short-term thinking is the price-to-earnings (P/E) ratio. The price-to-earnings ratio indicates how many years of current earnings it would take investors to recoup their initial investment, assuming earnings do not change. For example, AP/E of 10x implies a 10-year earnings horizon.
High price-to-earnings ratios are common among growth companies and reflect investors’ expectations for strong future performance through revenue growth or margin improvement. Together with ROIC revenue results, P/E multiples illustrate how investors weigh a company’s long-term potential against short-term profits. In general, companies with high price-to-earnings ratios face less pressure to deliver short-term results.
Figure 2: UCI sector: ROIC and price/earnings ratio.
Source: Bloomberg data and proprietary analysis (full table attached).
US stocks currently trade at an average price/earnings of 42.5x, with sector multiples ranging from 12.3x in life insurance to 241x in autos and parts. The companies with the highest multiples are concentrated in the technology sector – such as Tesla (280x), Palantir (370x), Nvidia (45x), Apple (36x), Meta (21x) and Alphabet (34x) – due to strong investor expectations and the influence of AI-related optimism.
Whether these valuations reflect a bubble or not, paying the equivalent of over forty years of earnings suggests that short-term results are not the primary driver of investor expectations.
Taken together, the evidence suggests that quarterly profits should not be blamed for corporate myopia. Several alternative approaches have been proposed to reduce short-term pressures that do not require eliminating quarterly reporting9.
The limits of changing disclosure frequency
One of the most effective ways to reduce short-term pressure would be to extend the duration of executive compensation, which is typically structured around a one-year performance cycle10. Such short horizons are inconsistent with the multi-year payback periods implied by ROIC and price-to-earnings ratios, and can create incentives for managers to prioritize short-term results over positive NPV projects. When compensation is closely tied to annual results, delaying value-adding investments becomes a rational, albeit suboptimal, response.
The central question is whether less frequent disclosure would help or harm market participants. Reduced reporting is associated with lower liquidity, less transparency, higher volatility and higher costs of capital, with little evidence that it meaningfully reduces short-term incentives. Given these tradeoffs and the availability of other tools to better align manager incentives with long-term value, it is wise to approach any move away from quarterly reporting with caution.
1 The economic implications of corporate financial reporting
2 To guide or not to guide
3 On guidance and volatility
4 The deregulation of quarterly reporting and its effects on information asymmetry and firm value
5 Frequency of financial reporting, information asymmetry and the cost of equity
6 Impact of reporting frequency on UK public companies
7 Attracting long-term shareholders
8 Guidance for long-term profits: Implications for the short-termism of managers and investors
9 Curbing short-termism in corporate America: Focusing on executive compensation
10 Optimal duration of executive compensation
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