Stock Repurchases and Corporate Control: Evidence from Japan

Author Name Julian FRANKS (London Business School) / Colin MAYER (Saïd Business School, University of Oxford) / MIYAJIMA Hideaki (Faculty Fellow, RIETI) / OGAWA Ryo (Waseda University)
Creation Date/NO. October 2018 18-E-074
Research Project Frontiers in Corporate Governance Analysis
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This paper provides a comprehensive study of stock repurchases in Japan over the period 2001 to 2014. It establishes the extent to which repurchases are used as an important control vehicle for preserving insider ownership. For example, blocks of shares when offered for sale are frequently repurchased and sometimes resold to other insiders. They are usually executed by quasi-private transactions and constitute about 45% of all repurchases. In contrast, repurchases from outsiders are usually executed by open-market transactions. Repurchases have a significant impact on the pattern of ownership in Japan: if they had not occurred, outsider ownership would have increased by 24% compared with an actual increase of 3%. Share prices respond in a markedly different way depending upon the motive for repurchase: sales of repurchased shares to insiders have significantly lower excess returns than sales made for other motives such as financial or capital structure reasons. This paper adds to the recent US literature on how self-interested management have used repurchases to improve the value of their vesting rights and executive compensation.