Morningstar doesn't do earnings calls. Here's why its CEO agrees with the SEC's plan to drop quarterly reporting.

The SEC is proposing to let companies report earnings twice a year instead of quarterly, a change Morningstar CEO Kunal Kapoor says could reduce costs and encourage more firms to go public. Kapoor supports the move, arguing it may curb short-term executive behavior and improve flexibility, while calling for clearer disclosure thresholds and limits on forward guidance. The proposal is out for 60 days of public comment and could meaningfully change public-company reporting norms if adopted.

Analysis

A move to semiannual reporting would be a structural tailwind for public-market quality, but the first-order winners are not the incumbents that already enjoy investor attention. The bigger beneficiaries are pre-IPO software, healthcare services, and profitable industrial names that currently avoid public markets because quarterly disclosure creates execution drag and managerial myopia; fewer reporting checkpoints lowers the “public company tax” and can improve the IPO pipeline over the next 12-24 months. That should be supportive for exchange ecosystems, bankers, and auditors, but most acutely for firms with strong annual visibility and lumpy quarterly results that have been penalized for noise rather than fundamentals.

For listed firms, the second-order effect is a compression of analyst engagement and a likely widening of information asymmetry between management and long-only holders. That usually helps companies with durable moats and hurts businesses that rely on frequent narrative resets to defend valuation. In that sense, quality and capital discipline should outperform low-credibility cyclicals; the market will likely reward firms that can credibly extend guidance horizons while discounting those with weaker disclosure standards or volatile working-capital profiles.

The risk is not regulatory approval alone, but the details: safe harbors, interim disclosure thresholds, and whether forward EPS guidance is discouraged. If the SEC weakens quarterly cadence without tightening material-event disclosure, volatility around mid-year updates could rise materially because fewer scheduled checkpoints increase the odds of gap risk when surprises hit. Over 3-6 months, the trade is less about headline policy and more about the market repricing of reporting-quality winners versus names that have been using quarterly beats as a crutch.

The contrarian view is that this is a governance upgrade only if companies voluntarily replace lost frequency with better annual communication; otherwise, investors will simply demand a higher equity risk premium. The biggest mispricing may be in assuming the effect is uniformly bullish for public equities — in reality, it is likely bullish for a narrower set of high-credibility compounders and for the IPO complex, while being negative for lower-quality names that depend on constant attention and guidance management.

Key Decisions for Investors

• Long MORN on a 6-12 month horizon: the company is positioned as a governance-quality franchise if the market starts rewarding lower-noise disclosure standards. Risk/reward is favorable because the stock can re-rate on perception even if direct economics barely move.
• Pair trade: long BRK.B / short a basket of high-guidance, high-frequency-beat names in sectors like consumer discretionary and small-cap software over the next 3-6 months. Thesis: the market begins paying a premium for companies that de-emphasize quarterly optics and emphasize long-duration capital allocation.
• Buy an IPO-levered basket on weakness — consider long IPOX or exchange-adjacent beneficiaries if available, or a basket of underwriting/brokerage names via GS/MS. Time horizon 12-24 months; the upside comes from a lower-cost-of-being-public narrative improving issuance volume.
• For event risk, keep a hedge on low-quality, high-multiple names that rely on frequent guidance resets. Short-dated put spreads into policy headlines could work if the market overprices a broad quality re-rating, because implementation details may take months and the first reaction can be overbought.
• If the SEC proposal advances, add on a pullback to MORN and BRK.B rather than chasing strength; the catalyst is gradual and the best entry is likely after the initial policy excitement fades and investors refocus on disclosure-quality dispersion.