Great read! I am looking at this from an entrepreneurial lens - Venture capital and private equity often benchmark themselves against public markets. When public company transparency decreases, investor confidence can dip, making it harder for startups to secure early-stage capital and slowing due diligence. Even if this change doesn’t directly impact private ventures, it can shape the environment in which they grow.
I worked for a private company that went public and there was a quick annoying shift to the quarterly view of the world. Going to semiannual is stated to assist companies in taking a longer view as opposed to always prepping for the quarter. I wonder if giving companies an additional quarter really accomplishes that….as a private company we would make decisions where we knew it was going to hurt for a year or two before the payoff.
As you say, this proposal is about access to accurate information. The classic study that comes to mind in this context is Akerlof's "Market for Lemons" -- the fact, demonstrated by studies on used-car markets, that the value of used cars as a product falls when potential buyers are not sure of the quality of the product -- the car may be in good shape, or not -- the owner may well have this information, but it is not available to buyers. At the same time, a hidden flaw may emerge after purchase, which would leave the buyer with a loss. The way this problem is addressed with respect to used cars is insurance -- if the seller offers a three-month warranty, the buyer can be reassured that the car is either worth what was paid for it, or they can return it to the seller. The problem is that there is not standard insurance available for stocks -- as they say, "Past performance does not guarantee future success." The ways investors usually offset this likelihood is by diversification into varied investment types, such as bonds, real estate, commodities, Treasuries or gold. This would help, but the outcome of a wholesale reduction in information about all stocks would be a secular one-time fall in the value of all stocks affected by the rule change. That would be a problem for companies hoping to raise money on the stock exchange -- it would reduce the benefit of listing. Another strategy would be options: a call option offers the investor the right to buy a stock at a strike price if they expect that the stock will increase in value beyond the strike price; a put option offers the ability to sell a stock at a strike price if they expect that the price of the stock will decrease. The downside of options is that they tend to be more volatile in value than the stock market. Conservative investors will avoid them; risk-takers will see significant swings, and the possibility of a crash in a recession. Expect thoughtful company CEOs and investors to resist this change.
Yeah like you point out in your analysis there is some potential draw backs. I expect the same. Most to continue with the norm. The new briefing changes filings but companies still have the right to put out quarterly reports. These are best guesses at best. What happens could be stranger than fiction. That is assuming that the changes actually go through
Great read! I am looking at this from an entrepreneurial lens - Venture capital and private equity often benchmark themselves against public markets. When public company transparency decreases, investor confidence can dip, making it harder for startups to secure early-stage capital and slowing due diligence. Even if this change doesn’t directly impact private ventures, it can shape the environment in which they grow.
That's a stakeholder I should have put more especially with VCs being more abundant now. It will definitely change the start up environment.
I worked for a private company that went public and there was a quick annoying shift to the quarterly view of the world. Going to semiannual is stated to assist companies in taking a longer view as opposed to always prepping for the quarter. I wonder if giving companies an additional quarter really accomplishes that….as a private company we would make decisions where we knew it was going to hurt for a year or two before the payoff.
As you say, this proposal is about access to accurate information. The classic study that comes to mind in this context is Akerlof's "Market for Lemons" -- the fact, demonstrated by studies on used-car markets, that the value of used cars as a product falls when potential buyers are not sure of the quality of the product -- the car may be in good shape, or not -- the owner may well have this information, but it is not available to buyers. At the same time, a hidden flaw may emerge after purchase, which would leave the buyer with a loss. The way this problem is addressed with respect to used cars is insurance -- if the seller offers a three-month warranty, the buyer can be reassured that the car is either worth what was paid for it, or they can return it to the seller. The problem is that there is not standard insurance available for stocks -- as they say, "Past performance does not guarantee future success." The ways investors usually offset this likelihood is by diversification into varied investment types, such as bonds, real estate, commodities, Treasuries or gold. This would help, but the outcome of a wholesale reduction in information about all stocks would be a secular one-time fall in the value of all stocks affected by the rule change. That would be a problem for companies hoping to raise money on the stock exchange -- it would reduce the benefit of listing. Another strategy would be options: a call option offers the investor the right to buy a stock at a strike price if they expect that the stock will increase in value beyond the strike price; a put option offers the ability to sell a stock at a strike price if they expect that the price of the stock will decrease. The downside of options is that they tend to be more volatile in value than the stock market. Conservative investors will avoid them; risk-takers will see significant swings, and the possibility of a crash in a recession. Expect thoughtful company CEOs and investors to resist this change.
Yeah like you point out in your analysis there is some potential draw backs. I expect the same. Most to continue with the norm. The new briefing changes filings but companies still have the right to put out quarterly reports. These are best guesses at best. What happens could be stranger than fiction. That is assuming that the changes actually go through