As the SEC launches a review of its minimum corporate disclosure requirements, the Opacity Protection Team has sprung into action.

One myth the OPT is pursuing is the claim quarterly disclosures discourages managers from taking the long view and making investments that won’t pay out for several years.  To support this claim, OPT roles out its usual collection of economists, industry lobby groups and corporate managers.

Before debunking this myth, it is important to understand what OPT claims is the transmission mechanism which links quarterly disclosure to managers making long-term investments in their business.  According to OPT, managers cannot make these investments because investors demand management achieve quarterly earnings targets.  What happens if the targets aren’t hit?  The failure to achieve these targets means the company’s stock price declines.  Therefore, to avoid a decline in stock price, management doesn’t invest for the long term.

This argument assumes investors care more about an easily manipulated accounting figure, quarterly earnings, than they do about what management tells them it has done by reinvesting in the business.  Anecdotal evidence consisting of the US high tech (think Google, Amazon) and bio tech sector clearly indicates this assumption is wrong.

So why else might companies not want quarterly disclosure?  How about compensation of senior management?  Maybe it is the senior managers’ stock options that prevent them from taking the long term view and instead causes them to focus on actively manipulating their stock price higher in the short run.  Reducing disclosure is one way of trying to manipulate the stock price.