This is an empirical investigation of the stock repurchase behavior of Nikkei 225 companies from 1995 to 2007. Companies repurchase their stock to return excess cash to investors, resolve governance issues, adjust capital structure and send signals. This paper uses a panel data methodology with accounting and market information to explain this behavior. Contrary to recent research on American firms, we find that replacement of dividends does not appear to explain stock repurchase behavior in Japan. We find strong evidence that repurchase behavior in Japan is linked to the adjustment of firms to their desired degree of leverage.
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