The effects of bank relations on stock repurchases: Evidence from Japan

Jun-Koo Kang, Kenneth Kim, P. Kitsabunnarat-Chatjuthamard and Takeshi Nishikawa

Journal of Financial Intermediation, 2011, vol. 20, issue 1, 94-116

Abstract: This paper examines the effects that bank relations have on stock repurchases in Japan. Similar to US evidence, we find that stock repurchase announcements in Japan have positive announcement period returns. Announcement returns are positively related to equity ownership by main banks, but are negatively related to nonbank debt ratios. In contrast, bank debt ratios do not have such a negative relation. Announcement returns are also negatively related to future growth opportunities, suggesting that repurchase announcements are greeted more positively by investors when repurchasing firms have lower growth opportunities. We also find that firms with high leverage are less likely to repurchase stocks, whereas firms with high equity ownership by main banks are more likely to do so. Overall, these results are consistent with the views that banks, particularly main banks, are effective monitors of agency costs and financial distress risk, and that their presence as dual stakeholders are value-enhancing.

Keywords: Stock; repurchases; Bank; relations; Main; bank; Japan (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:20:y:2011:i:1:p:94-116

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