Hedge funds and other investors are pushing back against a US Securities and Exchange Commission proposal that would allow public companies to report financial results every six months rather than every quarter, according to a report by Bloomberg.
They argue that less frequent disclosure could make it harder to identify deteriorating performance.
The proposal, backed by SEC Chairman Paul Atkins following President Donald Trump’s call last year to end mandatory quarterly reporting, has generated an unusually large response from investors, companies and market participants.
The SEC has received roughly 200,000 submissions on the proposal, according to a person familiar with the matter, making it the largest public-comment docket in the regulator’s history by volume.
Supporters of semi-annual reporting argue that reducing reporting requirements could encourage companies to focus on longer-term strategy rather than short-term earnings targets and give management greater flexibility to navigate temporary volatility.
Critics, however, say extending the reporting interval risks delaying important information reaching investors and could make it easier for companies to conceal deterioration in their businesses.
An analysis of more than 2,500 US companies suggests that concern may be particularly relevant when companies experience sharp swings in revenue.
Using historical data for S&P 1500 companies from 2010 onwards, Bloomberg constructed hypothetical six-month revenue figures by combining consecutive quarterly results. It then compared those figures with the underlying quarterly year-on-year changes.
The analysis found that significant negative quarterly revenue movements would have been obscured more than twice as frequently as positive ones under a semiannual reporting regime.
The effect became more pronounced during periods of heightened market volatility. During the Covid-19 pandemic, for example, as much as 15% of material quarterly revenue declines in a given year could have been hidden by combining results into six-month periods, compared with up to 7% of material quarterly increases.
A quarterly revenue movement was considered material if it represented a year-on-year increase or decline of at least 5%. A move was deemed to have been masked when the corresponding six-month figure pointed in the opposite direction.
The imbalance partly reflects the fact that large US companies typically report more periods of revenue growth than contraction, making it more likely that a weak quarter will be offset by a stronger subsequent period.
The energy sector provides a particularly stark example. Companies exposed to commodity prices experienced pronounced swings in revenue as oil demand collapsed and subsequently recovered during the pandemic.
Had current members of the Russell 1000 Energy Index reported only twice a year in 2020 and 2021, more than half would have recorded at least one material quarterly revenue move that would have been obscured by the longer reporting period.
The proposal has also drawn opposition from the hedge fund industry.
The Managed Funds Association, which represents alternative investment managers including hedge funds and private equity firms, has called on the SEC to retain access to timely information while seeking to simplify disclosure requirements elsewhere.
Citadel has separately warned that moving to semiannual reporting could make US markets less transparent and efficient.
Other investor groups have also urged the SEC to retain quarterly disclosure of material developments. The Committee on Capital Markets Regulation, whose members include senior executives from major financial institutions and asset managers, has argued that investors should continue to receive important information on a quarterly basis.
An analysis of more than 151,000 SEC submissions by Tzachi Zach, a professor at Ohio State University, found that roughly 99.5% of the comments reviewed opposed the proposal.
The formal comment period ended on 6 July.
Despite the opposition, the proposal could still become reality. Analysts have put a relatively high probability on the SEC moving to a semiannual framework by 2027, while supporters of the change include major companies such as Eli Lilly and ExxonMobil, with the latter arguing that semiannual reporting could modernise the US disclosure regime while maintaining investor protections and the quality of information available to markets.
The SEC has also stressed that any new regime would not prevent companies from continuing to report quarterly on a voluntary basis.
That would give investors a choice between companies maintaining quarterly disclosure and those opting for a six-month reporting cycle.
