Introduction of ToSTNeT-3 and Management Motivation for Choosing it

Abstract

This study discusses stock market share repurchase with prior announcement from the viewpoint of a firm management between February 2010 and December 2013 and focuses on share repurchase with prior announcement from among the three repurchase methods in the present TSE. The three types are 1) repurchase on auction market, 2) closing price transaction, and 3) Tokyo Stock Exchange Trading NeTwork System for off-auction own share repurchase transaction (ToSTNeT-3). This study develops hypotheses about the motivation for choosing a method of share repurchase, based on the particular Japanese conditions, and uses share repurchase data to test the hypotheses. We develop a new certainty and immediacy hypothesis associated with stock liquidity using examples from the American hypothesis (Bargeron, Kulchania, and Thomas, 2011). Moreover, we decide whether the block holder or management plays a leading role in choosing ToSTNeT-3 (block holder requirement type or management requirement type). If we can obtain evidence relating to selling share requirement of block holders, it is not necessary to analyze these in either testing hypotheses. However, because we cannot obtain such data, we test these hypotheses from available data. We find that of the about 781 share repurchases for firms listed on the first section of the Tokyo Stock Exchange (TSE), lower liquidity firms are likely to use ToSTNeT-3. This result supports a certainty and immediacy hypothesis. Furthermore, if we focus on the motivations of both the share seller and the buyer, we also find evidence that management chooses ToSTNeT-3 by accepting requests from block-holders (mainly general corporations other than financial institutions).