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Investing.com -- President Donald Trump’s plan to scrap quarterly reporting for U.S. companies could backfire, Goldman Sachs warns, pointing to Europe’s uneven disclosure practices that have created confusion without boosting long-term performance.
In Europe, about half of STOXX 600 companies report quarterly and the other half semi-annually, creating uneven disclosure cycles and difficulties for investors tracking earnings seasons.
The lack of uniformity also means some quarters are thin and skewed toward certain sectors or countries, making it harder to gauge the true underlying trend in results.
According to Goldman Sachs strategists, arguments in favor of less frequent reporting often focus on freeing management from short-term pressures.
Yet, “it seems somewhat ironic that U.S. companies – with quarterly-frequency reporting requirements – have outshone European and U.K. companies in terms of most longer-term metrics, including growth rates, rates of investment and ROE,” a team led by Sharon Bell wrote.
Europe provides a natural test case. Goldman found no material valuation or return-on-equity (ROE) differences between companies reporting quarterly and those reporting semi-annually.
Studies, including work by the CFA Institute, also suggest limited impact of reporting frequency on investment levels, though more frequent reporting can affect analyst coverage and forecast accuracy.
The strategists also pointed out that quarterly reporting may benefit investors by providing transparency and reducing the chance of issues going unnoticed, but it can also detract by encouraging management to focus too heavily on near-term earnings.
In practice, nearly all the attention in Europe falls on the firms that do report quarterly, giving them more investor focus and liquidity while implicitly penalizing those reporting less often.
Nearly all Energy companies in the region report quarterly, while most Consumer Staples report semi-annually, skewing the perception of results in certain quarters.
Overall, strategists argue that while the U.S. system benefits from uniformity, which aids comparability across companies and sectors, Europe’s patchwork approach shows that shifting away from quarterly reporting would not necessarily change valuations or investment outcomes.