Sanrio Co Ltd suspended a managing director after a probe uncovered hundreds of millions of yen in improper payments from a subsidiary.
Shares dropped up to 4% to 1,006.5 yen on Friday before recovering to 1,033.0 yen by 04:04 GMT.
The company has raised its FY2026 outlook, citing strong earnings growth from expanding operations in China and North America.
The investigation will be conducted with assistance from an independent organization to ensure transparency and thoroughness throughout the process.