Why Companies May Soon Report Less (and Spend Billions Less Too)

Not personalized financial advice - your money, your choice

2. That’s the number of financial reports that may be required by the Securities and Exchange Commission (SEC) if new rules pass. It’s also the number of brain cells I had left after digging through the fine print.”

The SEC is responsible for holding companies accountable by requiring them to report earnings each quarter. They’re basically the referee of public markets. Companies have to follow its playbook for quarterly earnings, which includes loads of rules, a ton of whistles, and a serious lack of halftime shows.

Think teachers teaching kindergarteners their A-B-Cs. Now swap the kids for CFOs and lawyers, and the crayons with spreadsheets and stress headaches. That’s earnings season in a nutshell.

The change will likely mean a reduction in costs of roughly 50% on SEC-mandated reporting. This translates to less money spent on consultants, lawyers, staff, paperwork, and let's face it, more money spent on share buybacks. 

Each year, U.S. companies spend about 136 hours per quarterly report, 1,720 hours on each annual report, and around $2M total per company just to stay compliant (Prof G Markets). just counting companies on the New York Stock Exchange, that’s about $5B a year per year - almost the same as the GDP of Fiji!

All that reporting makes it insanely expensive to go public. Which means fewer IPOs, fewer investment opportunities. More and more companies are staying private until they’re already giants. Looking at you, OpenAI. That's all the time and money that could be put toward hiring and training new employees and investing in research and development. Though, like I said earlier, a fair amount would end up as share buybacks.

A drawback of going to 2 reporting cycles instead of 4 is that we may lose some transparency into what is going on with the health of companies. It’s much less transparent - kind of like cleaning your fish tank half as often — you can still see in, but is that a clown… or just a clownfish?

Another drawback is that a big reason global investors love U.S. markets is the strict reporting rules. It’s harder for an Enron or Madoff to sneak through. In China, scandals are almost a feature: Luckin Coffee inflated $310M in sales before filing bankruptcy in 2021 (it’s since recovered).

Kandi once bragged about having a vast EV battery swapping network — 10,000 locations, like futuristic gas stations. In reality, they lied about the size of their network to snag government subsidies, which led them to go belly-up in 2013. It was less ‘nationwide network’ and more of a ‘ran the first mile, then Ubered to the finish line.’ 

Strict reporting is why U.S. markets are so reliable. But it’s also part of why we’ve gone from 7,000 public companies in the 1990s to only about half of that, 3,500 today. Private capital, M&A, and maybe just the fact that nobody enjoys a 1,700-hour homework assignment, have all played a role too.

If this explanation is smoother than raw acronym soup, subscribe to my YouTube channel or newsletter. Your brain cells will thank you — maybe you’ll even grow one back!

Subscribe!