Critics of quarterly reporting argue that it creates an overemphasis on short-term results that creates behaviors that can be damaging to companies and their investors in a number of ways. They argue that it can unduly focus companies on managing quarter-to-quarter reported results rather than on developing and implementing strategies and actions that create growth, increased profitability, and value creation over the longer term.
The outcome of this is that over time the performance of a company is the result of a series of its short-term actions and not of a cohesive strategy aimed at building growth, profitability, and corporate value. The critics also believe that this short-term focus can promote inappropriate earnings management and accounting abuses by corporate managers who view “making the numbers” as critical to meeting the “Street’s “expectations in order to maintain the price of their company’s stock and its image and credibility with investors and the capital markets. Thus, in order to make the quarterly numbers companies may take actions such as reducing expenditures of research and development and marketing that, while improving short-term earnings, can stunt growth and profits over the longer term.
