Companies may soon stop reporting quarterly for 1 big reason

Quarterly reports are long-standing tradition in the markets.

Which is why some may be surprised to hear that the members of the Investment Association (IA) are to demand in a report next week that FTSE 100 companies should stop reporting quarterly to encourage "long-term thinking," according to the Telegraph.

The new demands by the IA, the members of which own about a third of the FTSE 100, will note any company in the FTSE 350 which does not comply and force them to explain why.

The Telegraph quotes a source as saying the move is aimed "expanding the dialogue with companies" given the increasing variables affecting business today.

Insurance company Legal & General were among the first major company to advocate more time for reporting to reflect long-term strategies, and it seems most on the IA now agree despite the majority of big companies still use quarterly reporting.

The IA certainly aren't the only ones thinking this. Management Today quotes the economist John Kay as saying quarterly reporting promotes "hyperactive behaviour by executives whose corporate strategy focuses on restructuring, financial re-engineering or mergers and acquisitions at the expense of developing the fundamental operational capabilities of the business."

So which companies would benefit from such a move? A good example may be Tesco.

The supermarket is now in the process of a major strategy adjustment to reverse a long-term the downward trend, and if Christmas sales are anything to go by it appears to be having some effect, which we can see from the share price in the chart below.

But Tesco is a massive company, and reversing a downward course takes time and long-term faith of investors.

The company was in trouble last year for an accounting scandal in which it overstated 2014's expected first-half profits by more than £250 million.

The need to beat quarterly estimates regardless of long-term strategy may have been Tesco's undoing in that instance, and such it's the kind of thing the IA will be hoping to avoid with this proposal.