The Theory of the Firm document, the Friedman article, argue that the main goal of a firm in a market economy is to maximize profit (shareholder wealth) over the long term. However, SEC regulations require U.S. corporations to publish operating results on a quarterly basis. How does this short term time frame impact long term profit maximization? Should the SEC change their regulations of public corporations to require only annual reporting of operations? How might this impact stock price in the short term? How do you believe that management deals with these two sometimes competing goals?
This short term time frame impacts long term profit maximization. On one hand if a firm consistently performs well every quarter, its performance over the long term is likely to maximize profit. The short term time frame provides a strong incentive to every firm to perform well every quarter. The SEC regulation that requires US corporations to publish operating results on a quarterly basis allows monitoring of the performance of the corporations by shareholders, lenders, creditors, and other stakeholders. Normally, the time frame should allow for close monitoring of performance but should not adversely affect long term maximization. The company should pursue its long term profit maximization goals irrespective of the quarterly results.
The SEC should not change their regulations of public corporations to require only annual reporting of operations. Quarterly reports allow for closer monitoring of ...
SEC quarterly reporting is discussed step-by-step in this solution. The response also has the sources used.