In mid-September, US President Donald Trump proposed that publicly traded US companies should be able to dispense with quarterly reports in future and only publish half-yearly and annual financial statements. Trump and the new SEC chief Paul Atkins argue that this would reduce bureaucratic burdens and lessen the short-term orientation of corporate leaders and investors alike. The American president was thus revisiting his idea from 2018. At the time, it had found support from Jamie Dimon and Warren Buffet, among others, and there are also proponents in Germany.
“In fact, the topic is being hotly debated. This is confirmed by the responses of our DVFA investment professionals to the latest monthly question,” said Peter Thilo Hasler, member of the DVFA Executive Board, commenting on the results. “Overall, however, there is skepticism about the US proposal, especially in view of the quality of the transparent and efficient capital markets in Germany and Europe.”
As usual, respondents had a choice of predefined answers, but this time, for question 4, they also had the option of formulating their own answer.
Rejection of Trump's proposal prevails – one-third undecided
42% of respondents reject the proposal because it weakens market transparency and jeopardizes the efficiency of pricing and capital allocation overall. It is important to avoid information asymmetries between strategic investors with their specific access to company information on the one hand, and smaller investors who are dependent on public disclosures on the other.
Around a quarter of survey participants (26%) support the measure, as it would reduce short-term thinking and strengthen long-term corporate management.
Almost one in three (32%) are undecided. They do not want to assess the measure as either positive or negative on its own, as its effect would depend heavily on its interaction with ad hoc publicity and voluntary corporate disclosures. Comments included the suggestion that less frequent earnings reports could make sense for long-listed companies with stable business models, provided that ad hoc publicity works.
Fear of reduced quality of capital market communication
Concerns about a decline in quality dominate the expected impact on capital market communications. Around a quarter of respondents fear an increase in opportunistic communication strategies (25%), uncertainty among investors due to greater reliance on voluntary management guidance and analyst estimates (26%), or a growing information gap between “informed” institutional investors and less well-informed private investors (26%).
However, 23% of the investment professionals who responded also hope that the elimination of quarterly reports will increase the importance of general corporate communications, as the focus would then be less on quarterly figures and more on strategic narratives. “More personal responsibility, less regulation” was one of the comments on this. At the same time, participants accept that in this case, the importance of ad hoc publicity would increase.
Expected effects on capital market communication
Increase in opportunistic strategies – 25%
Investor uncertainty – 26%
Growing information gap – 26%
Increasing importance of communication – 23%
Source: DVFA e.V.
Negative impact on the functioning of capital markets expected
When asked about the impact of the American proposal on capital markets and their function, a clear majority of DVFA members participating in the survey (62%) chose the two response options that express skepticism.
- More than one in three (37%) fear that market volatility will increase because the intervals between the publication of new financial data will become longer.
- And one in four believe that activist investors and hedge funds will have an advantage because they could exploit information asymmetries more aggressively.
On the other hand, 38% do not expect any significant change, as they remain sufficiently informed through ad hoc obligations, alternative data sources, and sell-side research. One comment suggested that deregulation could generally slow down the trend away from stock market listings and toward private equity.
Majority rejects debate in Europe
A majority of 56% of the investment professionals surveyed oppose an initiative for less frequent reporting requirements in Europe or Germany. They argue that the high transparency standards established here are a significant competitive advantage for the attractiveness of the financial center.
The following concerns were raised in the free-form comments (3%):
- Lower transparency could reduce investor interest and share prices, thereby weakening the financing function of the capital markets.
- The market should decide on the scope and frequency of reporting requirements.
- Europe has other priority goals, such as the creation of a single capital market.
A significant minority of 44%, on the other hand, would like to see a more lively discussion in Europe as well. In their view, harmonizing reporting requirements with the US could strengthen the competitiveness of European stock exchanges. The arguments put forward in the free-text comments (8%) are as follows:
- Reducing bureaucracy and focusing more on the long term would also be beneficial in Europe.
- High bureaucratic hurdles are a locational disadvantage and could cause companies to relocate.
- Deregulation is generally desirable, although the benefits depend on the industry.
- Less frequent reporting curbs short-term quarterly thinking and strengthens the long-term nature of investments.
- In addition, the obligation to publish earnings forecasts should also be abolished.
“Our members’ skepticism about the US proposal is more than understandable given the geopolitical uncertainties,” summarizes Peter Thilo Hasler. “Instead of discussing less transparency, we in Europe should prioritize more important issues for our capital markets. If US reporting requirements were to be reduced, the EU could even benefit from this.”
Source: DVFA monthly question October