To Signal or to Control: The Determinants of Open-Market Share Repurchases in Japan

Abstract

Using listed firm-level data in the Tokyo Stock Exchange for the 1995-2006 period, we show that ultimate owners of firms with large cash flow and voting rights deviations announce and repurchase stocks more aggressively than do those of firms with small deviations. We also find that Keiretsu (business group)-affiliated firms are most aggressive in repurchasing their own shares when large deviations exists between cash flow rights and voting rights. Consistent with the view of the takeover deterrence hypothesis, our findings suggest that firms with greater deviations in these two rights are likely to make large stock repurchases to increase both the cost of toehold and the price of the offer.