This paper examines the effects that bank relations have on stock repurchases in Japan. Similar to US evidence, we find that stock repurchase announcements in Japan have positive announcement period returns. Announcement returns are positively related to equity ownership by main banks, but are negatively related to nonbank debt ratios. In contrast, bank debt ratios do not have such a negative relation. Announcement returns are also negatively related to future growth opportunities, suggesting that repurchase announcements are greeted more positively by investors when repurchasing firms have lower growth opportunities. We also find that firms with high leverage are less likely to repurchase stocks, whereas firms with high equity ownership by main banks are more likely to do so. Overall, these results are consistent with the views that banks, particularly main banks, are effective monitors of agency costs and financial distress risk, and that their presence as dual stakeholders are value-enhancing.

We investigate the stakeholder theory of capital structure from the perspective of a firm’s relations with its employees. We find that firms that treat their employees fairly (as measured by high employee‐friendly ratings) maintain low debt ratios. This result is robust to a variety of model specifications and endogeneity issues. The negative relation between leverage and a firm’s ability to treat employees fairly is also evident when we measure its ability by whether it is included in the Fortune magazine list, “100 Best Companies to Work For.” These results suggest that a firm’s incentive or ability to offer fair employee treatment is an important determinant of its financing policy.