Today, the Commission takes action to provide investors with the quantitative and qualitative information they need to better evaluate the impacts of repurchases on an issuer’s share price, as well as other key reforms in this space.
In 2022, S&P 500 companies set an annual record of $923 billion in share repurchases. By comparison, global IPO offerings in 2022 totaled less than $180 billion. Even in 2021, that figure was only $626 billion. It stands to reason that information on repurchases is material to investors.
Issuers conduct share repurchases for a number of reasons, with both upsides and downsides for an issuer’s securities market. Some studies have found that opportunistic insider behavior can motivate repurchases. For example, executives may try to manage repurchase activity in an effort to meet or exceed short-term earnings objectives or forecasts. CFO surveys have indicated that increasing earnings per share is an important factor affecting share repurchase decisions. And to the extent that repurchase activity may be motivated by such objectives, it can have real negative effects on the issuer and its shareholders — for example, by foregoing investments that could have resulted in better returns.
Current disclosures providing for aggregated, monthly repurchases simply do not provide the detail investors need to assess the efficiency, purposes, and impacts of an issuer’s share repurchases.
With today’s actions, investors will be able to distinguish between repurchases intended to increase shareholder value, and those that are motivated by other reasons, such as short-term attempts to boost share price. It will provide greater transparency to investors, lessen the information asymmetry between insiders and investors, and improve price discovery.
The changes we adopt today will similarly require quarterly disclosure of repurchase activity for both domestic and foreign private issuers. When Congress unanimously enacted the Holding Foreign Companies Accountable Act in 2020, it reinforced the principle that absent compelling reasons, foreign issuers should not be treated differently than U.S. issuers; instead, there should be a level playing field for all companies that choose to raise capital in our markets. Stated another way, whether investing in a U.S. or a foreign issuer, investors should be equally protected. While our periodic reporting system for private foreign issuers differs from domestic issuers in several respects, wherever possible, it is in the interest of investor protection to strive for a level playing field.
Finally, by requiring issuers to disclose their rationale for repurchases, and the process or criteria used to determine the amount, investors will benefit from disclosures that aren’t just boilerplate. To the contrary, issuers are able to provide tailored disclosures of how a repurchase program compares to other investment opportunities that generate financial returns, such as capital expenditures or workforce investments, to improve their quality and help avoid boilerplate. The same applies to discussions of sources of funding that would make it more or less advantageous for an issuer from a tax, cost, or other perspective.
I’m pleased to support the adoption of today’s rule and would like to thank all of the Commission staff, particularly in the Division of Corporation Finance, for their hard work.