2008-33
Complimentary Tickets, Stock Liquidity, and Stock
Prices:Evidence from Japan
Nobuyuki Isagawa
Katsushi Suzuki
Satoru Yamaguchi

Complimentary Tickets, Stock Liquidity, and Stock Prices:
Evidence from Japan

Nobuyuki Isagawa
Graduate School of Business Administration, Kobe University
isagawa@kobe-u.ac.jp

Katsushi Suzuki
School of Management, Tokyo University of Sciencekasuzuki@ms.kuki.tus.ac.jp

Satoru Yamaguchi
Ph. D. candidate, Kobe University

Abstract

This paper examines how complimentary ticket initiation affects stock liquidity andstock prices. Since complimentary tickets are relatively advantageous for small
shareholders, it can be predicted that firms’ announcements for initiating complimentary
tickets increase in the number of small shareholders and stock liquidity. Using 172
sample of complimentary ticket initiation of Japanese firms, we identify that the numberof shareholders increases and stock liquidity improves following the announcements ofcomplimentary ticket initiation. We also find that the stock price increases in responseto the announcement. There is a positive relationship between the magnitude of thestock price increase and the extent of improvement of stock liquidity.

1

1. Introduction

Complimentary tickets have been very popular among Japanese firms. At the end of
the fiscal year of 2007 (March 31), more than 1,000 Japanese listing firms (about 1/4 of
all listing firms) distribute complimentary tickets to their shareholders. In spite of theirwidespread use in the business, however, little attention has been paid to the effect ofcomplimentary tickets in academic research. This article is an initial attempt to examine
the effects of the complimentary tickets on stock liquidity and stock prices.
Using complimentary tickets, firms distribute their goods or services to theshareholders. Most complimentary tickets are favorable for small shareholders (asexplained later). It is sometimes pointed out that the purpose of complimentary ticket
initiation is to appeal to individual investors. For example, the Nihon Keizai Shimbun,
which is the most popular economic newspaper in Japan, reports that “A survey by
Daiwa Investor Relations Co Ltd. found that the number of firms introducing
complimentary tickets had reached 1,000. Firms consider complimentary tickets as amean of appealing to individual investors and encouraging stable long-term ownership”(June 6, 2006, morning edition).
By using 172 Japanese sample firms that introduced complimentary ticket program
between 1998 and 2005, we empirically examine the effects of complimentary ticket
initiation on the number of shareholder or ownership structure. We identify that, on
average, the number of total shareholders increases significantly following theannouncements of complimentary ticket initiation. In particular, the number ofindividual shareholders significantly increases. If firms’ objective for initiatingcomplimentary ticket is to increase the number of small individual shareholders, thenthis is successful. On the other hand, there is a slight but insignificant decline in theownership ratio of large shareholders. Complimentary ticket initiation therefore results2

in further diversification among small individual shareholders without substantiallydecrease in the ownership ratios of large shareholders.
In addition to the number of shareholders, we examine some measures of stock
liquidity such as bid-ask spread, trading volume, and the liquidity ratio. Comparing to a
firm in the same industry with similar financial characteristics, we identify that stock
liquidity for the sample firms significantly improves just following the announcement ofcomplimentary ticket initiation.
Existing literature argues that the increase in stock liquidity affects the stock price ofthe firm. We then examine the announcement effect of complimentary ticket initiationon the stock price by using the standard event study methodology. We find that, on
average, the sample firms experience a significant positive stock price increase of
1.19% (with t-value of 3.78%) on the announcement date. A cross-sectional regression
analysis indicates that the magnitude of the announcement effect of the stock price hassignificant positive relationships with the extent of increase in the number ofshareholders and improvement in stock liquidity.
As argued above, the amount of distribution of complimentary ticket is notproportional to the ownership ratio. In most cases, it is relatively advantageous for small
shareholders and disadvantageous for large shareholders. From this viewpoint, initiationof complimentary ticket decreases in large shareholders’ wealth. On the other hand,complimentary ticket initiation contributes to large shareholders’ wealth by liquidity
improvement. Our results show that, in the short-term, the liquidity effect is larger thanthe (discriminated) distribution effect, resulting in increase in large shareholders’wealth.
The remainder of the paper is organized as follows. In Section 2, we explain aboutcomplimentary tickets among Japanese firms more detail. In Section 3, we present a
numerical explanation that discriminated distribution of complimentary tickets increasein the number of small shareholders. In Section 4, we describe our sample firms and3examine changes in the number of shareholders and sock liquidity between before andafter complimentary ticket initiation. In Section 5, we examine the stock price responseto the announcement of complimentary ticket initiation. Section 6 summarizes thepaper.

2. Complimentary Tickets of Japanese Firms

Complimentary tickets have been popular among Japanese firms. Figure 1 shows
the total number of Japanese listing firms that introduced complimentary tickets from1992 to 2006. As shown in the Figure, there were 251 firms that have introduced
complimentary ticket program in 1992. The number of firms increased steadily insubsequent years, and by 2006, 1,018 firms (roughly equivalent to 1/4 of all listing
Japanese firms) have introduced complimentary ticket program.

[Figure 1]

Using complimentary tickets some Japanese firms distribute their own goods orservices to shareholders. This type of complimentary ticket is introduced by firms that
manufacture and sell products or provide services very close to final consumers. In fact,
approximately 70% of firms that initiated complimentary tickets belong to the foodprocessing sector and retail sector (Tokyo Stock Exchange (TSE) industrial
classifications). Other firms send goods or cash equivalent that the firms do not produce
themselves to shareholders (for example, bags of rice or cash equivalent coupon).
One prominent feature of complimentary tickets in practice is that the amount ofgoods and services received by shareholders is not proportional to the shareholders’ownership (the number of holding shares). In most cases, complimentary ticket programis relatively advantageous for small shareholders.

4For example, Ajinomoto, a major Japanese food processor, introduced
complimentary ticket in the 2001 fiscal year. Its complimentary ticket is as follows. “Allshareholders who are registered on a record date, at March 31 of each year, will begiven a set of the firm’s products equivalent to 3,000 yen.” The minimum trading unitof Ajinomoto share is 1,000 shares. Then, both a small shareholder owning 1,000 shares
and a large shareholder owning 10,000 shares receive the same Ajinomoto products
equivalent to 3,000 yen. Comparing the rate of return regarding a complimentary ticket,
the rate of return of the small shareholder is 10-times larger than that of the large
shareholder.
Another example is a complimentary ticket program of Oriental Land, which
operates Tokyo Disneyland and Tokyo Disney Sea. Oriental Land gives its shareholders
1-day passports available for one of the two parks. The number of passports receivableto shareholders is not proportional to the number of shares owned by shareholders, too.
In fact, a small shareholder owning 100 shares receives two 1-day passports, while alarge shareholder owning 3,000 or more shares receives only twelve 1-day passports(the minimum trading unit of Oriental Land’s share is 100). As the same of the case of
Ajinomoto, a complimentary ticket program is relatively advantageous for small
shareholders
Similar to the above two cases, most complimentary tickets of Japanese firms arethose in providing advantages for small shareholders. It is reasonable to assume thattypical small shareholders are individual shareholders with limited investment funds,
which implies that complimentary ticket initiation is attractive to individual
shareholders.
To our knowledge, there exist European and American companies that introduce
complimentary ticket program. In the U.K., about 70 firms introduced complimentary
tickets for shareholders at the year of 2004, roughly 1/5 of the large listing firms. To the5contrary, only a relatively small number of firms introduce complimentary tickets in the
U.S. (for example, McDonald's, Starbucks, and Walt Disney, etc).

[NEW FIGURE: THE NUMBER OF FIRMS INTRODUCED TICKETS BY
INDUSTRY (2006) AND SAMPLE FIRM DISTRIBUTION]

3. Discriminated Distribution and Increase in the Number of Shareholders

We make hypothesis that a firm experienced an increase in the number ofshareholders after it initiates complimentary ticket program for shareholders. The
following numerical explanation is useful to understand the reason. Let us consider thecase of an all-equity firm with 1,000 firm value, 10 outstanding shares, one large
shareholder and 6 small shareholders. The large shareholder holds 4 shares of the firmand each small shareholder holds one share, respectively. The ownership ratio of thelarge shareholder is 40% and that of each small shareholder is 10%. The stock price iscurrently 100. The wealth of the large shareholder is 400, and the wealth of each small
shareholder is 100.
Suppose that the firm decides to introduce a complimentary ticket program andmakes an announcement of its intention to do so. In this program, a firm distributes aticket worth 10 to all shareholders regardless of their ownership ratio. Distribution toeach shareholder is not proportional to the ownership ratio. Such a discriminateddistribution is a typical feature of complimentary tickets prevailing in the real world.
If the ownership structure of the firm does not change until the record date, then the
total amount of distribution will be 70. In this case, the ex-distribution value of the firm
will be 930 so that the ex-distribution stock price will be 93. The wealth of each small
shareholder will increase to 103 from 100, because they will receive 10 value in theform of a complimentary ticket and hold one share worth 93. In contrast, the wealth of6the large shareholder will decrease from 400 to 382, because he receives only one
10-value ticket and hold 4 shares worth 372 (93×4). Note that the value of one shareheld by the large shareholder is smaller than that owned by each small shareholder
because of discriminated distribution of complimentary tickets.
Predicting this outcome, the large shareholder considers to selling his shares
between the announcement date and the record date. Suppose that the large shareholder
sells 3 shares on the stock market. These 3 shares are probably purchased by threedifferent new shareholders. Each new shareholder will purchase only one share, because
holding any block (2 shares or 3 shares) is relatively disadvantageous as in the case of
the old large shareholder1.
The above arguments suggest that complimentary ticket initiation increases thenumber of shareholders, in particular the number of small shareholders. In the next
section, we examine the actual effect of complimentary ticket initiation by Japanesefirms on the number of shareholders (or ownership structure) and stock liquidity.

4. Changes in the Number of Shareholders and Stock liquidity(1) Selection of sample firms and matching firms

Our sample includes Japanese firms that made announcements of initiation ofcomplimentary ticket program between January 1998 and December 2005. We gather
the sample from TD net (Timely Disclosure network) data service of Tokyo Stock1

For example, suppose that one investor (new large shareholder) purchases 3 shares asa block. Then, there is one large shareholder holding 3 shares and seven small
shareholders holding one share. It is easy to see that the total value of 3 shares ownedby the new large shareholder is 286 (94.33 each share), and the value of one shareowned by each small shareholder is 102 at the record date.
7

Exchange (TSE). Complimentary ticket initiation disclosed on TD net is reported in themorning edition of Nihon Keizai Shumbum on the following business day(announcement date).
We eliminate firms that changed the minimum trading unit, stock split, and equity
issuance during the same fiscal year of the complimentary ticket initiation, because
these events affect the number of shareholders and stock liquidity (Amihud, Mendelson,
and Lauterbach (1997), Amihud, Mendelson, and Uno (1999), Hauser and Lauterbach(2003), Hanaeda and Serita (2004), Ahn, Cai, Hamao, and Melvin (2005)). We also
eliminate firms that made announcement other (confounding) events around theannouncement date. The final sample consists of 172 firms that did not change theminimum trading unit of stocks and the number of outstanding shares during thecomplimentary ticket initiation year.
The stock price data and financial data required for the analysis were collected from
Nikkei Economic Electronic Data System (NEEDS) files, which is similar to
COMPUSTAT. Information on the nature of complimentary tickets was collected from
Annual Report published by Nomura Investor Relations, TD net, and Nihon Keizai
Shumbum.
As in the same way of Amihud, Mendelson, and Uno (1999) and Ahn et al. (2005),
we examine the effects of complimentary ticket initiation on the number of shareholders
and stock liquidity by comparing sample firms and their matching firms. For each of the
172 firms, we assign a matching firm using the following procedure. First, we selectfirms (candidate firms) that belonged to the same industry (TSE industrial
classification) of the sample firm and did not change the minimum trading unit and thenumber of outstanding shares during the fiscal year of the sample firm’s complimentary
ticket initiation. Second, we calculate the average stock price and trading volume ofeach sample and candidate firm during a 120-day period prior to the announcement date8

(from -140 to -21 days).2 Throughout the paper, day -t denotes t days before theannouncement date, and day t denotes t days after the announcement date. Among firms
which average stock prices are within a range of 80% to 120% of the average stock
price of the sample firm, we choose one with the closest average trading volume to thatof the sample firm as the final matching firm.

[Insert Table 1 around here]

Table 1 reports characteristics of both the sample firms and their matching firms.
There is no significant difference in average financial measures such as the market
value of equity, the book value of total assets, the market-to-book ratio (the ratio of themarket value of equity and the book value of debt to the book value of total assets), andthe debt ratio (the ratio of debt to total assets). The market value of equity is calculated
at the end of the fiscal year just before the announcement of complimentary ticket
initiation.
In addition, there is no significant difference in firm’s profitability measured by
ROA and cash flow to total assets. ROA is the ratio of operating income to total assets.
Cash flow is defined as operating income before depreciation minus common andpreferred dividends (Howe, He, and Cao (1992)). Table 1 also shows that the dividend
yield and the ratio of dividend paying firms are very similar between the sample firms
and their matching firms. Overall, financial characteristics, firm profitability, anddividend policy of the matching firms are very similar to those of the sample firms.

(2) Changes in the number of shareholders and large shareholders

2

The 120-day period prior to the announcement date (from -140 to -20 ) is also used toestimate the market model parameters in the event study.
9[Table 2 around here]

Table 2 represents the number of shareholders and ownership ratios for both thesample firms (Panel A) and the matching firms (Panel B) at the end of the fiscal year
just before the announcement of complimentary ticket initiation (“Before”) and at theend of the fiscal year just after the announcement (“After”). As shown in Panel A, thesample firms experience significant increases in the numbers of total and individual
shareholders after complimentary ticket initiation. The average number of total
shareholders for the sample firms increases from 7,309 to 9,224, and the average
number of individual shareholders increases from 6,302 to 8,304. Since the averageincrease in the number of total shareholders (1,915) is almost equivalent to that in thenumber of individual shareholders (2,002), it seems reasonable to conclude that theincrease in the total number of shareholders for the sample firms is due to the increasein the number of individual shareholders.
Contrary to the sample firms, Panel B of Table 2 shows that there is no significant
increase in both the number of total shareholders and individual shareholders for thematching firms. Comparing the average increasing rate of the number of total
shareholders between sample firms and their matching firms, we identify a difference
between the two groups at significance level of 1%. We also identify that there is adifference in the average increasing rate for the number of individual shareholders
between the two groups at significance level of 1%. If the sample firms’ objective ofcomplimentary ticket initiation is to increase the number of shareholders, especially the
number of small individual shareholders, then it would appear to be successful.
Table 2 also presents the changes in ownership structures (ownership ratio) before
and after complimentary ticket initiation for both the sample firms and their matchingfirms. As shown in Panel A of Table 2, sample firms do not experience the increase in10

the ownership ratio of individual shareholders. It follows from the above results that
individual shareholders have even small blocks after initiation of complimentary tickets.
For sample firms, there is no significant change in ownership ratio of board
members, top 10 large shareholders, and mutual funds. While the ownership ratio oflarge shareholders (top 10 shareholders) decreases in response to complimentary ticket
initiation, the negative impact is not significant. In addition, for our sample period, thematching firms experience significant decreases in the ownership ratio of top 10
shareholders. Therefore, it can be concluded that there is no significant negative impact
of complimentary ticket initiation on large shareholders’ ownership.
Although the foreign shareholders’ ownership ratio increases for the sample firms,
this is not due to complimentary ticket initiation. It is well known that, in the sample
period for this study, foreign shareholders’ ownership ratios were increasing for many
Japanese public companies. In fact, the average foreign shareholders’ ownership ratio
for the matching firms increases more than that for sample firms3.

(3) Stock liquidity

It is possible that increasing in the number of shareholders is positively associatedwith stock liquidity. In this subsection, we examine the stock liquidity surrounding theannouncement of initiation of complimentary ticket program. In accordance with priorstudies, we use four measures of stock liquidity; bid-ask spread rate, execution spreadrate, relative trading volume, and liquidity ratio.

3

The above results do not change when we choose a matching firm in the same

industry of a sample firm with the closest market-to-book ratio, ROA, or market valueof equity.
11

The bid-ask spread rate is given by (ask-bid)/mid, where ask is the closing ask price,
bid is the closing bid price, and mid is the median quoted price of (ask + bid)/2. The
bid-ask spread can be interpreted as compensation for liquidity providers (Clyde, Schulz,
and Zaman (1997)). The higher the liquidity of the stock, the smaller the bid-ask spreadrate.
The execution spread rate is given by 2⏐exe - mid⏐/mid, where exe is the final
execution price and mid is the median of the next subsequent quote prices. The
execution spread of ⏐exe - mid⏐ represents the spread paid by traders in return for
liquidity, and can be interpreted as the transaction costs (Clyde, Schulz, and Zaman(1997)). Similar to the bid-ask spread rate, the higher the liquidity of the stock, thesmaller the execution spread rate.
In order to examine the liquidity effect of the announcement of complimentary
ticket initiation, we compare each spread before the announcement and that after theannouncement. We define “BEFORE” period as a 120-day period from day -140 to day-21. Similarly, “AFTER” period means a 120-day period from +21 to +140.
The trading volume is an increasing function of the stock liquidity (Amihud and
Mendelson (1986)). The relative trading volume for firm i stock is given by log(Vi/VM),
where Vi is the average firm i stock trading volume (in yen) during a given period, and
VM is the average trading volume (in yen) for all stocks listing on the TSE. For the
sample firms, we compare between log(Vi/VM)BEFORE and log(Vi/VM)AFTER, where
BEFORE means a 120-day period of (-140, -21) and AFTER means a 120-day period of(+21, +140), respectively. We also compare the changes in the relative trading volume
between the sample firms and the matching firms (Amihud, Mendelson, and Lauterbach(1997) and Muscarella and Piwower (2001)). The change in the relative trading volume
for firm i stock is defined as
DVi = log(Vi / VM ) AFTER − log(Vi / VM ) BEFORE

12

(1)

It is expected that log(Vi/VM)AFTER is larger than log(Vi/VM)BEFORE. It is also expected
that, on average, DVi for sample firms is larger that for matching firms.
The liquidity ratio for firm i stock measures the trading volume associated with aunit change in the stock price (Amihud, Mendelson, and Lauterbach (1997)). It isdefined as
LRi = ∑t Vit / ∑t Rit ,(2)

where Vit and Rit are, respectively, the trading volume and return on firm i stock on day t.
We examine the change in log of liquidity ratio (log(LR)) surrounding theannouncement date. A stock with high liquidity seems to have a large liquidity ratio,
because the impact on the high liquid stock price is small even when large volumes aretraded. Then, it is expected that liquidity ratio increases following the announcement
provided that the market participants rationally predict the increase in the number ofshareholders. We also compare in the average DLR defined just bellow between thesample firms and the matching firms.
DLRi = log( LRi ) AFTER − log( LRi ) BEFORE(3)

Table 3 suggests that there is a significant liquidity improvement following theannouncement of complimentary ticket initiation. As shown in Panel A, both of theaverage bid-ask spread rate and the average execution spread rate for the sample firms
narrow significantly following the announcement. In addition, on average, the trading
volume of the sample firms, measured by log(Vi/VM) and log(LRi), increase following
the announcement.

[Table 3 around here]13

Panel B shows that the sample firms experience significant improvement in stock
liquidity more than their matching firms do. On average, the magnitude of reduction in
the bid-ask spread rate for the sample firms, 16.57%, is significantly larger than that forthe matching firms, 6.61%. Similarly, the reduction in the execution spread rate for the
sample firms, 16.94%, is significantly larger than that for the matching firms, 6.61%.
The average DVi for the sample firms, 0.23, is significantly larger than that for thematching firms, 0.02. The average DLRi for the sample firms, 0.38, is significantly
larger than that for the matching firms, 0.10. These results support that theannouncement of complimentary ticket initiation significantly enhance the stock
liquidity.

5. Stock Price Behavior and the Liquidity Effect(1) The announcement effect of complimentary ticket initiation

We next examine the stock price behavior surrounding the announcement ofcomplimentary ticket initiation. In a perfectly competitive stock market, neither increasein the number of shareholders nor improvement in stock liquidity has an effect on thefirm value. In the real world, however, the assumption of the perfectly competitivemarket might not be satisfied because of the existence of transaction costs, asymmetric
information, and other factors. For example, Amihud and Mendelson (1986)
theoretically shows that improvement in stock liquidity increases the firm value by
reducing the transaction costs. Merton (1987) shows that under asymmetric information
an increase in the number of shareholders (or investor base) raises recognition of thefirm, reduces the cost of capital, and raises the firm value.
Several empirical studies identify the above theoretical prediction. Corporate events
such as stock split and reduction in the trading unit improve stock liquidity and raise the14stock price of the firm (Amihud, Mendelson, and Lauterbach (1997), Amihud,
Mendelson, and Uno (1999), Hauser and Lauterbach (2003), Hanaeda and Serita (2004),
and Ahn, Cai, Hamao, and Melvin (2005)). In the previous section, we identify that the
number of shareholders increases and stock liquidity improves after complimentary
ticket initiation (or the announcement). Then, we make a hypothesis that the stock priceof a firm goes up in response to the announcement of complimentary ticket initiation.
We perform a standard event study in order to examine the announcement effect on
stock prices for the sample firms. We calculate the abnormal return for each sample
firm on any given date by using the market model methodology with TOPIX as a proxyof the market portfolio. The parameters of the market model are estimated over a
120-day period between day -140 and day -21. The abnormal return for each firm iscomputed as the difference between the actual return and the estimated return from themarket model. The cumulative abnormal return is the sum of the abnormal returns forthe days in the relevant event window.

[Figure 2 around here][Table 4 around here]

Figure 2 plots the average cumulative abnormal return (CAR) for the sample firms
surrounding the announcement date (from day -20 to day +20). On average, the sample
firms experience a large increase in stock prices just after they make announcements ofcomplimentary ticket initiation.
Table 4 presents the average abnormal return (AAR) and the average cumulative
abnormal return (CAR) for the sample firms. Panel A presents the daily averageabnormal returns from day -10 to day +10. On average, the sample firms experience asignificant positive abnormal stock return of 1.19% on the announcement date (day 0).
In Pane1 B, we report cumulative abnormal returns in various event windows. In the15window prior to the announcement of (-20, -1), there is no significant stock priceincrease for the sample firms. In contrast, CAR (-1, +1), CAR (-1, +10), and CAR (-1,+20) are significantly positive. These results thus indicate that there is a positive
announcement effect of complimentary ticket initiation on the sample firms’ stock
prices.

(2) Liquidity and stock priceWe next examine the relationship between the stock price increases and stock
liquidity improvement. As argued in the previous subsection, our primary hypothesis isthat an increase in the number of shareholders and/or improvement in stock liquidity
contribute the stock price (liquidity hypothesis).
In order to examine the liquidity hypothesis, for each sample firm, we makeregression analysis of CAR on the relative changes in the number of shareholders andliquidity measures. We use two measures for the change in the number of shareholders;
the rate of change in the number of total shareholders (⊿TS) and the rate of change in
the number of individual shareholders (⊿ID). The liquidity hypothesis predicts the
positive regression coefficients on both ⊿TS and ⊿ID. For the change in stock
liquidity, we also use two measures; the relative changes in the bid-ask spread ratio (⊿(Bid-Ask)) and DV given by (1). Under the liquidity hypothesis, we predict that thecoefficient on ⊿(Bid-Ask) is negative and the coefficient on DV is positive.
There are other factors that seem to affect the stock market response to theannouncement of complimentary ticket initiation. For example, it is well-known thatlarge shareholders play an important role in corporate governance and monitoring(Shleifer and Vishny (1986)). To control this factor, we add the relative change in theownership ratio for top 10 shareholders (⊿Top10) as a independent variable.

16Another interpretation is that initiation of complimentary ticket is dividend increase.
That is, a firm distributes additional cash equivalent to shareholders by using
complimentary tickets. Dividend increase raises stock price at least for two reasons.
First, dividend increase is a signal that the profitability of the firm will improve(Bhattacharya (1979), Miller and Rock (1985), and Healey and Palepu (1988)). To
control such information effect, we use the change in the ratio of operating return to thetotal assets (⊿ROA) between fiscal years before and after the complimentary ticket
initiation. Second, as mentioned by Jensen (1986), cash or cash equivalent distribution
is a financial instrument to reduce agency cost of free cash flow. We do not control
measures regarding the free cash hypothesis, because the amount of complimentary
ticket (in yen) is too small to persuade that the firms distribute their free cash flow
through complimentary tickets. The average amount of complimentary ticket (in yen) is
about only 1% of the net income for our sample firms.
As mentioned above, complimentary ticket program is different from cash dividendin the sense that firms can promote their own products or services to shareholders. This
unique feature of complimentary ticket generates word-of-mouth advertising fromshareholders. Among our sample of 172 firms, some firms provide their own products
or services to shareholders and other firms provide goods that the firms do not produce
themselves (for example, bags of rice or convenient cards equivalent to cash). It is
possible to make a hypothesis that the stock price reaction is different between two
groups. To control this possibility, we use a dummy variable which equals one for afirm that gives shareholders its own-product or service as complimentary ticket.

[Table 5 around here]

Table 5 presents the results of the cross-sectional regression analysis. In Panel A(model 1 to model 5), we use a slightly longer CAR (-1, +20) as a dependent variable in17

accordance with Amihud, Mendelson, and Lauterbach (1997) and Muscarella andPiwower (2001).
Models 1, 2, and 3 show that both changes in the number of total shareholders (⊿TS) and individual shareholders (⊿ID) have significant positive relationships with theannouncement effect of stock price. Models 4 and 5 show that coefficients on theliquidity measures, changes in the relative trading volume (DV) and the bid-ask spreadrate ⊿(Bid-Ask), are also significant and consistent with the prediction. Although notshown in this paper, there is a significantly positive relationship between CAR and DLR(instead of DV), and a significantly negative relationship between CAR and the change
in the execution spread (instead of ⊿(Bid-Ask)).
In Panel B (models 6 and 7), we use a 3 day period CAR (-1, +1) as a dependent
variable. The results do not change. Both ⊿TS and DV significantly contribute thestock price increase in response to the announcement.
All of these results support the liquidity hypothesis. When a firm makes anannouncement that it has intention of initiating complimentary ticket program, themarket appreciates the firm’s stock by expecting that the number of shareholders will
increase and stock liquidity will improve. While complimentary ticket itself is notfavorable for large block shareholders, the liquidity effect contributes their wealth. No
other independent variable has a significant relationship with the magnitude of the(positive) announcement effect.
The results are not essentially different when we use other event windows of (-10,+10) and (-1, +10). That is, the liquidity effect is robust in regardless of the length ofevent window.

6. Conclusions

18

This study looks at a sample of 172 Japanese firms that initiate complimentary ticket
programs between 1998 and 2005, and examine the liquidity and price effects. Sincecomplimentary ticket program is relatively advantageous for small shareholders,
practitioners sometimes point out that the purpose of complimentary ticket initiation is
to increase the number of small individual shareholders. Consistent with this suggestion,
we identify that, on average, both the numbers of total and individual shareholders of
the sample firms increase significantly after complimentary ticket initiation. In thissense, the firms’ objective for initiating complimentary ticket is successful.
In addition to the increase in the number of shareholders, we identify that themeasures of stock liquidity improves following the announcement of complimentary
ticket initiation. On average, the trading volume increases and the bid-ask spread rate
decreases.
Prior studies show that improvement in stock liquidity contributes the stock price.
An event study analysis is used to investigate the stock price reaction. We identify thatthe average stock price for the sample firms goes up in response to the announcement ofcomplimentary ticket initiation. A cross-sectional regression analysis confirmed that the
improvement in liquidity contributes to large stock price increase.
Complimentary ticket program is disadvantageous for larger shareholders andforeign shareholders (there is little attraction to foreign shareholders because most of thecomplimentary tickets can be used only in Japan). Taking the positive announcement
effect of the stock price into account, however, complimentary ticket initiation does notharm the wealth for large shareholders and foreign shareholders. It can be concluded
that complimentary ticket initiation increases all shareholders’ wealth in regardless of
its discriminated distribution.
[2008.6.5 878]

19

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