Discovery at Carlson·13 Why quarterly reporting benefits the economy

Salman Arif: Why quarterly reporting benefits the economy

In the United States, publicly traded companies are required to report their financial performance quarterly. Yet, many other countries only require semi-annual reports.

A number of critics, from opinion page writers to President Donald J. Trump, suggest that U.S. companies might be better off adopting less-frequent reporting requirements. The idea is that such a move takes pressure off executives to meet short-term goals in favor of creating long-term value. But how would financial markets and investors fare under such a system?

New research by Carlson School Assistant Professor Salman Arif finds that less-frequent reporting leads to greater volatility and mispricing in the stock market, as investors rely excessively on alternative sources of information to determine how well their investment is doing.

Stock market “butterfly effects”

As a derivatives trader for JP Morgan in the early 2000s, Arif says he noticed that non-U.S. firms’ stock prices (e.g., UK’s Vodafone) tended to move dramatically after American companies in the same industry (e.g., Verizon) reported their quarterly earnings.

“I wanted to know why these big stock market reactions might be happening around the world, and I realized that foreign companies often had long stretches of time when their investors were in the dark,” Arif says. “That got me wondering: ‘Does the reaction change depending on when they report and when they don’t?’”

Many years (and a business PhD) later, Arif finally found a chance to dive in.
He and his collaborator gathered thousands of quarterly reports from American companies across many industries and compared them to similar international firms.

They uncovered a global ripple effect when an American company reported its quarterly earnings. For example, the stock price of Vodafone or Japan’s NTT Docomo would rise or fall in tandem as investors reacted to a quarterly report from Verizon. The spillovers were twice as strong for foreign firms whose quarterly results were absent because they only reported semi-annually.

Arif suggests this happens because investors suffer from an “information vacuum” when firms provide financial reports less often. Information-starved investors rely more aggressively on alternative signals, such as news from industry peers, causing the stock prices of semi-annual firms to respond more heavily to timelier sources of information.

Interestingly, the swings in foreign stock prices reversed when the foreign firm finally announced its own earnings, indicating investors originally overreacted to the timelier news from the U.S.

“We conclude that less-transparent reporting causes more volatile and less efficient stock prices,” Arif says.

Even though overreactions are ultimately corrected, Arif cautions that volatility still impacts the market.

“Volatility causes people to view the market as riskier than it actually is, so they’re more likely to withdraw their money or not invest in the first place,” he says.
"Less-transparent reporting causes more volatile and less efficient stock prices."

A better way to avoid short-term thinking.

Overall evidence suggests that more frequent reporting likely isn’t to blame for often-heard allegations of short-term thinking in corporate America, says Arif.

“Many of the world’s most successful companies are located in the U.S.,” he says. “They’ve clearly found a way to deliver long-term value to their investors and customers even while reporting their financial results every three months.”
Despite no silver bullet, Arif suggests one potential fix: Stop the common practice of managers providing quarterly guidance, whereby they announce expected earnings per share for the upcoming quarter.

“There’s little evidence that less-frequent reporting actually reduces corporate myopia,” he says. “But one place where managers could start to fix this is by not locking themselves into trying to meet or beat short-term earnings targets they themselves voluntarily announce.”

 

Salman Arif：季度财报有利于经济

美国上市企业必须每个季度汇报财务业绩，但很多国家只要求出具半年财报。
包括专栏作家和特朗普总统在内的许多评论人认为，美国企业应该降低财报的频次。他们认为此举可以减轻高管达成短期目标的压力，进而关注创造长期价值。但是，金融市场和投资者会作出怎样的反应呢？
卡尔森学院助理教授Salman Arif的最新研究发现，降低财报频次会导致投资者过分依赖其他信源，从而增加股市波动、造成市场错价。

股市的“蝴蝶效应”

21世纪初，Arif曾在摩根大通担任衍生产品交易员。当时他注意到美国以外地区的企业（例如，英国的沃达丰）的股价会在美国同行（例如，威瑞森）公布季度营收后出现剧烈波动。

“当时我很好奇，为什么全球股市会存在这些剧烈的市场反应。后来我意识到，外国企业的投资者在较长时间内对企业业绩一无所知。于是我开始思考：这些市场反应是由于是否发布财报引起的吗？”

多年（且获得商学博士学位）后，Arif终于找到了研究这个问题的机会。

他与合作者收集了美国多个行业的数千份季度财报，并与同行业的国际企业进行对比。

他们发现，美国企业发布季度营收会引起全球性的连锁反应。例如，由于投资者对威瑞森季度财报的反应，沃达丰和日本NTT Docomo的股价会出现浮动。与每季度发布财报的外国企业相比，每半年发布财报的企业承受的溢出效应的强度达到两倍。

Arif表示，这是由于企业的财报频次较低，投资者遭遇了“信息真空”。缺乏信息的投资者会更积极地依赖其他信源，例如，同行企业的新闻。因此，这些企业的股价会对较为及时的信源作出更严重的反应。

有趣的是，发布营收数据后，这些外国企业的股价会发生逆转。这说明投资人对来自美国的更为及时的信源作出了过度反应。

“我们的结论是，财报透明度降低会使股价更易波动、效率更低。”

虽然股市的过度反应最终会得到纠正，但Arif认为，过度波动依然会对市场造成伤害。

“股价过于动荡，会使人们放大对股市风险性的理解、进而退出股市，甚至从一开始就拒绝股票投资。”

“财报透明度降低会使股价更易波动、效率更低。”

避免短视的解决之道

Arif表示，所有的证据都显示，司空见惯的对美国企业短视的指控，其原因不在于财报频次过高。
“很多世界上最成功的企业都在美国。很明显，他们找到了在每三个月汇报一次财务结果的同时为投资者和顾客创造长远价值的方法。”

Arif没有提出什么包治百病的良方，但建议了一个可行的方法：企业不再提供季度指导，而是发布下季度的预测每股收益。

“没有证据表明降低财报频次能够缓解企业短视的问题。但是，企业可以考虑，不要过度执着于他们自己主动宣布的短期营收目标。”