The Pump-Priming Effect of Regulatory Reform on Stock Repurchases : Evidence from Lifting the Ban on Treasury Stocks in Japan
AbstractThis study investigates corporate reactions to the deregulation of stock repurchases set forth on 1 October 2001, in Japan, by looking at the motivations for stock repurchases. We found that stock repurchases increased significantly after the ban on treasury stocks was lifted. Our results show that firms with free-cash flow problems initiated a repurchase plan to distribute excess cash to shareholders and reduce agency costs over the sample period. In addition, firms who wanted to signal undervaluation also undertook stock repurchases over the sample period. These firms were affected by the deregulation, unlike firms that repurchase to reduce agency costs. We determined that firms with weak incentives to signal undervaluation increased stock repurchases significantly in order to respond to the deregulation, since these firms had the ability to take advantage of treasury stock purchases.
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Bibliographic InfoPaper provided by Center for Japanese Business Studies (HJBS), Graduate School of Commerce and Management Hitotsubashi University in its series Working Paper Series with number 109.
Length: 17 p.
Date of creation: Apr 2010
Date of revision:
Treasury stocks; Undervaluation; Takeover deterrence; Capital structure; Cash distribution;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
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