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The Effect of Enhanced Disclosure on Open Market Stock Repurchases

40 Pages Posted: 24 Jun 2009  

Michael Simkovic

USC Gould School of Law; University of Southern California - Marshall School of Business

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Abstract

Publicly traded companies distribute cash to shareholders primarily in two ways - either through dividends or through anonymous repurchases of the companies' own stock on the open market. Companies must announce a repurchase authorization, but do not actually have to repurchase any stock, and until recently did not have to disclose whether or not they were in fact repurchasing any stock. Scholars and regulators noticed that companies frequently announced repurchases but then appeared not to complete them. Scholars and regulators became concerned that such announcements might be used by insiders to exploit public investors. To increase transparency and reduce opportunities for exploitive behavior, the SEC required that companies disclose their repurchase activity for the past quarter in their 10-Q and 10-K filings beginning in January 2004. This paper tracks the 365 repurchase programs announced in 2004 and finds that since the SEC disclosure requirement went into effect, companies are more likely to complete their announced repurchases and do so within a shorter time period after the repurchase announcement.

Keywords: Payout, Payout Policy, Cash disbursement, Cash distribution, Stock Repurchase, Repurchase, Share Repurchase, Open Market Repurchase, Open Market Stock Repurchase, Disclosure, SEC, Financial Regulation

JEL Classification: G1, G14, G18, G3, G35, G38

Suggested Citation

Simkovic, Michael, The Effect of Enhanced Disclosure on Open Market Stock Repurchases. Berkeley Business Law Journal, Vol. 6, No. 1, Spring 2009. Available at SSRN: https://ssrn.com/abstract=1117303

Michael Simkovic (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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