Mergers And Acquisitions Influences Japanese Economy

by

Abstract

The aim of this paper was to examine how mergers and acquisitions influence Japanese economy-Cross-border and the causes of the first merger boom since the late 1990s in Japan. Using industry-level data, this paper shows that mergers and acquisitions (M&As) are driven mainly by economic shocks. While industries with higher growth opportunities are likely to have more M&A activity, industries facing negative fundamental shocks, such as rapid sales declines, also experience larger M&A deals. These results suggest that the recent merger wave in Japan is mainly explained by the neoclassical model. At the firm level, this study finds that the bidder is the firm with the higher growth opportunity, and the target is the one with the lower growth opportunity. This means that Japanese firms improved their efficiency through merger activity since the 1990s. Lastly,I find that internal funds for the acquiring firm play a very important role in bidding activity, while a high probability of being targeted for M&A is associated with high leverage.

Table of Contents

CHAPTER I: INTRODUCTION4

Background4

Purpose of Study6

Hypothesis6

?Why M&A has clustered6

Research question6

CHAPTER II: LITERATURE REVIEW7

Theoretical framework9

Merger activity, pre-199010

Corporate survival in the recession12

Industry example: the automotive industry16

The hostile takeover19

Legal Reforms Promoting Mergers & Acquisitions722

The Impact of the Lifting of the Ban on Holding Companies and the Stock Transfer System22

The Surge in Stock Swaps and Takeovers24

Building an M&A Infrastructure27

M&A Clustering in Specific Industries: A Feature of the M&A Boom in the 1990s30

CHAPTER III: METHODOLOGY33

Hypotheses I33

Why M&A has clustered33

Data35

Descriptive Statistics38

Hypothesis II39

A Firm-Level Investigation of M&A39

Data41

CHAPTER IV: RESULT43

Firm Level Analysis I: Acquisitions43

Industry Level Analysis44

Firm Level Analysis II: Targeting47

CHAPTER V: DISCUSSION AND CONCLUSION49

REFERENCES64

APPENDIX92

Chapter I: Introduction

Background

The number of mergers between large companies has been low, and hostile takeover cases have been rare in post-war Japan.(Berger,2009,39) Since the 1990s, however, total merger and acquisition (“M&A”) activity is increasing in both number of cases and in value. (Berkovitch,2007,347) Coinciding with the trend in total M&A activity, hostile tender offer attempts are also more frequent with thirteen cases in the period from 1999 to July 2007. (Berger,2009,39) The collapse of the bubble economy and the subsequent recession in the 1990s forced Japanese companies to question the efficiency of the traditional Japanese system of corporate governance, which was characterized by an important role for main banks. (Berkovitch,2007,347) Although this corporate governance may have been beneficial for the production needs and technology of Japanese companies up to the 1990s, “those needs have changed and the main bank has largely ceased to function” (Berger,2009,39). Deregulation of financial markets has reduced the influence of the main bank, and the banking crisis and new accounting rules in the latter half of the 1990s have resulted in unwinding of stable and cross-shareholdings.(Berger,2009,39) Specific Japanese cultural characteristics that are claimed to have limited M&A have changed as well, and major legislative amendments regarding M&A were announced and implemented from the late 1990s onward.(Berkovitch,2007,347) Blakemore (2008) notes that the lifetime employment system has become increasingly difficult to sustain for Japanese companies, and “the keiretsu relationships in Japan were drifting ...