Share repurchases in Japan: market reaction and actual implementation

Abstract

In this paper, I investigate the share price performance surrounding share repurchases announcements in Japan. It is found that there is a statistically significant abnormal returns at the announcement about 5%. Further analyses indicate that abnormal returns at the announcement are positively related to announced repurchase percentage target; negatively related to firm size, market-to- book value ratios and prior returns before the repurchase decision is made. There is some weak evidence that independent firms exhibit higher abnormal returns at the purchase announcements than keiretsu- affiliated firms. Overall, the evidence from Japanese repurchases is consistent with the signaling/undervaluation hypothesis advocated by Ikenberry, Lakonishok and Vermaelen ( 1995).