Given how important public companies are to retirement savings and U.S. household finances, the reduction in listed companies and the increasing age of IPOs is something we should try to correct.
Two common complaints (from companies) are that it is:
- Too expensive and complicated to be public — partly because of all the reporting they need to do.
- More challenging to execute long-term growth strategies with quarterly reporting and stock reactions.
Nasdaq has long advocated for reduced reporting obligations — either with a bigger focus on materiality or via less frequent reporting. Recently, President Donald Trump and U.S. Securities and Exchange Commission (SEC) Chair Paul Atkins have both supported moving U.S. companies from quarterly reporting to semi-annual. This move would also align U.S. public company obligations with places like the European Union and the U.K.
More importantly, as we show today, it could save companies from preparing hundreds of pages of disclosures every year.
Company accounting is critical to efficient valuations
Public disclosure of accounting data is a key factor helping investors value stocks. That, in turn, helps ensure stock markets add to efficient asset allocation, growing the economy.
U.S.-listed companies are required to make certain disclosures on SEC forms. There are different rules depending on their status as a Domestic Issuer or a Foreign Private Issuer (FPI). For example:
- 10-K, 20-F, and 40-F: Annual reports, including audited financial statements.
- 10-Q: Quarterly reports, including unaudited financial statements.
- 8-K or 6-K: Ad-hoc regarding material (or current) events, or SEC-required disclosures, and semi-annual reports (for FPIs).
Table 1: SEC reporting requirements
What’s in these SEC filings?
There is a lot of overlap in the content of most of the regular filings, although the annual filings are most comprehensive, as Table 2 below shows:
Table 2: What is required in each SEC report
While annual reports are clearly the most comprehensive, 10-Qs and 6-Ks can also include some of the items marked with a red “X” if there is a material development for the company triggering disclosure. In addition, foreign companies need to include anything they are required to disclose in their home country in their SEC filings.
How large are all these filings?
To understand exactly how much work each filing entails, we counted the number of pages in the most recent annual and quarterly (for U.S. companies) or semi-annual report for all the Nasdaq-100® constituents.
As the data in Chart 1 shows:
- 20-Fs are typically the longest of all the filings (although typically this includes copy-pasted data and visualizations from their home country filings).
- 10-Ks are around twice as long as 10-Qs.
- 6-Ks are the shortest reports.
Although 10-Qs and semi-annual report 6-Ks are similar in length, U.S. companies are preparing 10-Qs three times a year (versus just once for foreign private issuers).
Chart 1: Number of pages in SEC reports for Nasdaq-100® constituents
Interestingly, the circle size shows the market cap of each company. Visually, the data seems to indicate that shorter 10-K and 10-Q filings are often lodged by the largest companies.
Elimination of the additional two quarterly reports for domestic issuers would save an average of 116 pages of filings per company – that’s around 10,000 less pages for the Nasdaq-100® alone.
What is an FPI?
At a basic level, foreign private issuers (FPIs) are companies that are incorporated abroad but list their stock in the U.S. However, the rules also look at the proportion of their shares held by U.S. residents, as well as the location of the company’s executives, directors, assets, and headquarters. The actual tests for an FPI are found in Securities Act Rule 405 and Exchange Act Rule 3b-4.
In contrast to domestic issuers, FPIs file SEC reports semi-annually (twice a year). FPIs are also able to:
- Use existing reports and presentations that were used for home country filings.
- Reduce disclosure for executive compensation, market risk and financial position.
- Use international accounting standards (IFRS) instead of U.S. Generally Accepted Accounting Principles (GAAP).
FPIs are also exempt from some reporting, including insider transactions (although recently enacted U.S. law has instructed the SEC to require FPIs to file beneficial ownership reports), human capital management resources and objectives, listing exchange corporate governance rules, SEC proxy solicitation rules and Regulation FD (e.g., FPIs can disclose nonpublic information selectively).
What is an 8-K?
One thing we haven’t talked about much here is material (and current) event reporting. Domestic issuers must report material events or corporate changes using SEC Form 8-K.
FPIs use SEC Form 6-K (the same form used for their semi-annual reports) to report current events.
Both 8-Ks and ad-hoc 6-Ks typically cover events like leadership changes, mergers, auditor changes, securities changes, bankruptcies, financial results/earnings, or revised financial statements, among numerous other events.
Although we don’t analyze the length or frequency of material event reports in this study, a quick review of EDGAR for a few stocks indicates:
- It’s not unusual to see 10 material event reports filed in a year.
- These reports can range in length from very short (one sentence) to very long, such as the length of a “Super 8-K,” which are used when a de-SPAC merger happens.
Annual cost of public filings estimated at $9 billion each year
In addition to staff time spent preparing reports and disclosures, the costs of SEC filings include audit fees, consulting fees and maintaining systems and technology.
Experts estimate that total annual SEC compliance costs, including audit costs, range from below $0.5 million for small companies to $5+ million for large companies – averaging roughly $2.3 million per company. For all U.S. companies, that adds to roughly $9 billion a year.
If moving U.S. companies from quarterly to semi-annual reporting reduced these costs by half, using a PE multiple of just 10, that could add roughly $45 billion to U.S. market valuations. That would, in turn, reduce the costs of capital and make being public more attractive.
Most other countries are already semi-annual
Interestingly, less than 20 countries require quarterly reporting. In the past 25 years, numerous countries, including the U.K., all the European Union countries and Australia, have moved to semi-annual reporting.
Moving to semi-annual reporting for U.S. companies would also not only align U.S. public company obligations with other countries, but also help alleviate short-termism and reduce reporting costs and costs of capital. That, in turn, should make public companies more attractive to issuers and investors.
