Why Not Let The Market Decide The Frequency Of Earnings Reports?

In an Op-Ed published yesterday by The Wall Street Journal, MIT Senior Lecturer Robert Pozen and Harvard Law School Professor Mark J. Roe  argue for the retention of quarterly earnings reports with some modifications.  They would replace the first and third quarter Form 10-Qs with "news releases explaining material changes in their revenues and earnings, paired with two streamlined quarterly reports filed with the SEC for public availability".  This is a rather modest proposal that would likely yield even more modest savings for issuers.

The Professors' argue that quarterly reports are "highly valued by stockholders and analysts because they want up-to-date information on the company".  They then immediately contradict themselves by asseverating "quarterly 10-Q report filed with the SEC—typically, a week to 10 days after the earnings release—is often considered a nonevent".  They also claim that the Form 10-Q is "a phone-book-size document".  They must live in very small towns indeed!

The professors also claim that biannual reporting would lead to increased insider trading and earnings management.  Even if they are correct, why draw the line at quarterly reporting? Why shouldn't the government mandate monthly, weekly or even daily reporting?  Wouldn't that reduce the risk of misconduct even more?  The professors don't explain why quarterly reporting is "just right" in balancing costs and benefits.

Why not simply let the market decide how often companies should file reports?  If the market truly values quarterly reporting, then companies will be rewarded for hewing to the traditional schedule.  Companies in other circumstances may pursue longer-term objectives.  Investors in those companies may prefer that those companies save money by eliminating the "nonevent" of a quarterly report.  Moreover, a company that publicly announces its intention to report on a longer term basis is providing the market with valuable information - its commitment to the long-term growth of the company.

If the professors are correct, they have nothing to fear from allowing companies to choose their own reporting periods.  The market will arrive at the same result.