Pledged securities – shares of a public company pledged by their owner as collateral – present a potentially serious risk to a company’s governance and share price if those shares are ever called as collateral.
These risks include forfeitures of a substantial holding in the company, a significant change in company ownership, and possibly even result in a violation of insider trading policies. Furthermore, company stock prices could become drastically depressed if exposed shares pledged as collateral are subsequently sold into the market.
Despite the litany of risks associated with pledged securities, many large companies still permit the practice. However, there has been a decrease in disclosed share pledging activity since 2016.1
Pledged Shares – Overall
Both the number of companies that disclosed pledged shares and the number of individuals pledging their company shares declined year-over-year in five of the last six years.
In 2021, the number of unique companies that disclosed pledged shares dropped to 361, a 7.7% decrease from 2020. Even more drastically, the number of individual beneficial owners of company shares dropped to 572, a 13.2% decrease from 2020.
Pledged Shares – Aggregate
Tracking the magnitude of aggregate pledged shares in terms of total common shares outstanding can reveal a great deal about corporate risk and potential implications. This is particularly true if a company has a large percentage of their total common shares outstanding pledged for a long period of time.
As the amount of pledged company stock, in aggregate, increases, so does the risk. Overwhelmingly, most companies disclose less than 25% of aggregate shares pledged to total shares outstanding.
Since 2016, of the companies that disclosed pledged shares, more than 95% disclosed that less than 25% of their total shares outstanding were pledged.
There are certain exceptions. For example, in 2021, four companies had more than 60% of their outstanding common stock pledged.
Notably, Revlon has had over 80% of its shares outstanding pledged in each of the last four years. In comparison, Partners Bancorp and Amneal Pharmaceuticals drastically reduced the percent of shares pledged to shares outstanding in 2021.
Accessing Disclosures
Despite the significance, information about how many beneficial owners of company stock have pledged their shares, and how much, is not always obvious.
The SEC does require disclosure about securities pledged by certain beneficial owners and directors. However, companies often inconsistently disclose this information in either a 10-K or in their proxy. Often, companies bury this information in a footnote to a complicated table full of numbers. As a result, the information is difficult to both find and decipher, especially if multiple individuals pledged shares.
Audit Analytics compiles and normalizes information about disclosed pledging activity. Our Pledged Securities database now contains six years of information. Contact us for more information.
1. This analysis uses disclosures in the Pledged Security Database with effective dates between January 1, 2016 and December 31, 2021. Analysis includes only the most recent disclosure in each year for each individual.↩
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