Stock price behavior surrounding stock repurchase announcements: Evidence from Japan

Abstract

This paper examines stock price behavior surrounding announcements of stock repurchases made by Japanese firms from 1995 to 1998. Our analysis shows that, much as in the case of the U.S. markets, stock prices in Japan go up in response to stock repurchase announcements. We also find that there is no significant difference between the market reaction to the announcement for intention of repurchase execution and the market reaction to the announcement of an article alteration to allow stock repurchases. On the other hand, there is a significant difference in the pre-announcement period returns motivating these two announcements. While a large decline in stock price will motivate a firm to execute a stock repurchase, a smaller price decline will motivate a firm to merely alter its articles of association to allow future repurchases.

The Price Impact of Open Market Share Repurchases

“…In the post-event period, the excess return appears to disappear. This result is similar to the findings reported by several prior studies examining repurchase announcements in other markets and time periods, e.g., Vermaelen (1981), Comment and Jarrell (1991), Ikenberry et al (1995), and Hatakeda and Isagawa (2004). 33 80 announcements are excluded because they are on the same day or the day after an interim report.…”

Short-Term Price Effects of Stock Repurchases in Turkish Capital Markets

“…By and large, although coefficients are different in economic and statistical significance, univariate and multivariate analysis results complement each other and it is possible to conclude that analyses results are congruent with the ones obtained in the US (Vermaelen, 1981;Netter & Mitchell, 1989;Ikenberry, Lakonishok, & Vermaelen, 1995;Liu & Ziebart, 1997), Canadian (Ikenberry, Lakonishok, & Vermaelen, 2000), Hong Kong (Zhang, 2005) and Japanese (Hatakeda & Isagawa, 2004) markets.…”

“…Rate of returns for a single share in a single day is calculated in Excel by simply dividing the difference between the closing price at that single day and at that of the previous day by the share price of the previous day, i. Cumulative abnormal returns (CAR), on the other hand, are calculated in Excel by the common function below (Zhang, 2005;Hatakeda & Isagawa, 2004;Grullon & Michaely, 2004;Weston & Siu, 2002;Ikenberry, Lakonishok, & Vermaelen, 1995):…”

“…Research outside the US market also reveals similar results. For instance, Ikenberry, Lakonishok and Vermaelen (2000) in Canadian market; Zhang (2005) in Hong Kong market; Hatakeda and Isagawa (2004) in Japanese market portray that repurchase transactions are related with price changes. Researchers believe that such price changes occur as the market perceives repurchases as positive signals or solutions for agency problems.…”

“…In fact, as the authority to use company funds for repurchase is delegated to managers, the company is exposed to the risk of loss in case managers exert their authority at their personal interests. Therefore, many jurisdictions have prohibited repurchases for years except for extraordinary cases (Andriosopoulos & Hoque, 2013;Hatakeda & Isagawa, 2004;Grayston, 2012).…”