Line of Inquiry: Haresh Sapra on How Quarterly Reporting Distorts Corporate Investment

Transparency is an important feature of healthy markets, and regular financial reporting from public companies helps promote transparency in US equities markets. So is more-frequent reporting inevitably better than less-frequent reporting? Not necessarily, says Chicago Booth's Haresh Sapra. More-frequent reporting may lead to greater price efficiency, but it can also dissuade certain types of companies from making R&D investments that generate innovation and add to those companies’ value over the long run. Although compliance costs are often cited as a reason to cut down on the frequency of corporate reporting, those costs are minuscule in comparison to the value those would-be innovators forego as they try to keep quarterly profits in line with analysts’ expectations.