In the last few years, the Government of the USA has considered stopping the need for listed companies to report their results on a quarterly basis. In the recent elections, Ms Hillary Clinton made a strong pitch to move away from Quarterly Capitalism and Mr Bernie Sanders endorsed expert opinion on the ill-effects of quarterly capitalism. Three primary factors that drive the vote against quarterly reporting are (1) it imposes short term view of business and when coupled with short term government policy making, it increases the risks to the financial health & stability of the economy (2) it encourages various types of fudging and fraudulent activities and (3) it increase the volume of money laundering multi-fold. This has several adverse high-severity economic consequences.
17th August 2018 - President Trump is reviewing this:
https://money.cnn.com/2018/08/17/news/companies/trump-drop-quarterly-reports/index.html
Ms. Hillary Clinton endorsed the issue during elections
https://www.businessinsider.in/HILLARY-Corporate-America-is-obsessed-with-quarterly-capitalism-heres-how-Id-change-that/articleshow/51654215.cms
Earnings Management: The Dark Side of Financial Reporting – the link provides an interesting perspective
In the emerging markets, governments that are sincere about building a strong balance sheet for the country, with a focus on asset & job creation, will endorse this American initiative.
In countries that rank low in the Transparency Index, criminal activities, high severity bank/corporate frauds and tax evasion, create an excess liquidity situation in the market. This creates an asset bubble in the market.
In India, in the last one year, 30 auditors resigned from Indian companies.
https://economictimes.indiatimes.com/industry/services/consultancy-/-audit/30-auditors-resigned-from-indian-companies-this-year/articleshow/64422972.cms
The investments into the market come through different ‘channels/vehicles’ and through different entities. The process is not transparent and ownership is difficult to verify. For example:
Creating new avenues/channels/vehicles/instruments and new strawmen accounts is a 24*7 acitivty. Enforcement in some countries is pathetic and barring couple of countries, the rest are always behind the ‘investment engineers’. (tweaking the word ‘financial engineers’).
There will be intensive lobbying to keep quarterly reporting as the stock market is controlled by ‘market makers’ and predators who go for a kill almost every day.
President Trump is serious about this and has even got the support of…..Warren Buffet!. Media reported that Mr Buffet stating “I’ve seen how pressure to produce forecasted results distort business decisions in a myriad of ways. Companies, shareholders and, indeed, our country would be better served by focusing on concrete metrics and fundamentals rather than pre-emptive commitments to short-term performance.”
With an increasing acceptance for moving away from Quarterly Capitalism across the world, we professionals should increase awareness on the issue in our jurisdictions. What is your take?
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