This pre-registered study seeks to investigate the effects of bank ties on corporate repurchase decisions and stock price reactions to buyback announcements. We make causal inferences to provide more insights into bank ties for stock repurchase decisions during extreme financial distress. We focus on the COVID-19 pandemic as an exogenous shock and identify whether the COVID-19 shock affected the bank-ties effect of the motives of stock repurchase decisions in a bank-based financial system. Our study sheds light on the motives behind stock repurchase decisions and the role of banks in corporate cash distribution to shareholders. Furthermore, our study contributes to understanding how extreme financial distress, such as COVID-19, affects the motive for stock repurchase in a bank-based financial system.
This pre-registered study implements the empirical analyses approved in the pre-registered report (Sakawa et al., 2024) to reveal the effects of bank ties on both corporate repurchase decisions and stock price reactions to buyback announcements. Using the COVID-19 pandemic as an exogenous shock, our study offers three key findings. First, main banks with shareholder views tend to promote stock repurchase decisions of their client firms during the pandemic. Second, the announcement effect of stock repurchases is smaller for firms with (vs. without) a main bank relationship during the COVID-19 pandemic. Finally, stock repurchases of financially constrained firms with main bank relationships are supported by the cash-holding view of their main banks. These findings provide a deeper understanding of how extreme financial distress, like that which occurred during the COVID-19 pandemic, affects the motive for stock repurchase in financially constrained firms.