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Do Out-In M&As Bring Higher TFP to Japan?: An Empirical Analysis Based on Micro-data on Japanese Manufacturing Firms

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  • Kyoji Fukao
  • Keiko Ito
  • Hyeog Ug Kwon

Abstract

This paper compares the performance of foreign-owned and domestically-owned firms, using micro data on Japanese firms in the manufacturing sector for the period 1994-2000. The overall comparison between foreign-owned and Japanese companies shows that foreign-owned companies enjoyed 5% higher TFP as well as higher earnings and returns on capital. They also displayed a higher capital-labor ratio and higher R&D intensity. Reflecting their higher TFP and labor-saving production patterns, foreign-owned companies showed higher labor productivity and wage rates as well. By estimating Probit models, we found that foreign firms acquire Japanese firms with higher TFP levels and higher profit rates. In contrast, in-in M&As seem to have the characteristics of rescue missions. Small firms with a higher total liability/total asset ratio tend to be chosen as targets of in-in M&As. We also estimated the dynamic effects of M&As on target firms. The results indicate that out-in M&As improve target firms' TFP level and current profit/sales ratio. Compared with in-in M&As, out-in M&As bring a larger and quicker improvement in TFP and the profit rate but no increase in target firms' employment two years after the acquisition.

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File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2004/pdf/D04-41.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d04-41.

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Date of creation: Sep 2004
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Handle: RePEc:hst:hstdps:d04-41

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Keywords: FDI; TFP; in-in M&A; out-in M&A;

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References

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  1. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  2. Griffith, R & Simpson, H, 2001. "Characteristics of foreign-owned firms in British manufacturing," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  3. David H. Good & M. Ishaq Nadiri & Robin C. Sickles, 1996. "Index Number and Factor Demand Approaches to the Estimation of Productivity," NBER Working Papers 5790, National Bureau of Economic Research, Inc.
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  5. Blomström, Magnus & Sjöholm, Fredrik, 1998. "Technology, Transfer and Spillovers: Does Local Participation With Multinationals Matter?," CEPR Discussion Papers 2048, C.E.P.R. Discussion Papers.
  6. Fukao, Kyoji & Ito, Keiko, 2000. "Foreign Direct Investment and Service Trade: The Case of Japan," Discussion Paper Series a394, Institute of Economic Research, Hitotsubashi University.
  7. Kyoji Fukao, 2004. "Do Foreign Firms Bring Greater Total Factor Productivity to Japan?," Discussion papers 04014, Research Institute of Economy, Trade and Industry (RIETI).
  8. Mark E. Doms & J . Bradford Jensen, 1998. "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 235-258 National Bureau of Economic Research, Inc.
  9. Fukunari Kimura & Kozo Kiyota, 2007. "Foreign-owned versus Domestically-owned Firms: Economic Performance in Japan," Review of Development Economics, Wiley Blackwell, vol. 11(1), pages 31-48, 02.
  10. Steven Globerman & John C. Ries & Ilan Vertinsky, 1994. "The Economic Performance of Foreign Affiliates in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 143-56, February.
  11. Sang V Nguyen & Michael Ollinger, 2002. "Mergers and Acquisitions and Productivity in the U.S. Meat Products Industries: Evidence from the Micro Data," Working Papers 02-07, Center for Economic Studies, U.S. Census Bureau.
  12. Conyon, Martin J, et al, 2002. "The Productivity and Wage Effects of Foreign Acquisition in the United Kingdom," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 85-102, March.
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Citations

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Cited by:
  1. ITO Keiko, 2011. "Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case of Japanese firms," Discussion papers 11063, Research Institute of Economy, Trade and Industry (RIETI).
  2. ITO Keiko & FUKAO Kyoji, 2007. "Determinants of the Profitability of Japanese Manufacturing Affiliates in China and Other Regions: Does Localization of Procurement, Sales, and Management Matter?," Discussion papers 07001, Research Institute of Economy, Trade and Industry (RIETI).
  3. Antonios Georgopoulos & George Argyros & Giota Boura, 2008. "Which Targets Stimulate Cross-border Acquisitions? An Empirical Investigation of Industrial Organization and Trade Factors within a Competition Framework of International and Domestic Acquisition Targ," Journal of Industry, Competition and Trade, Springer, vol. 8(1), pages 55-72, March.
  4. Fukao, Kyoji & Ito, Keiko & Kabe, Shigesaburo & Liu, Deqiang & Takeuchi, Fumihide, 2007. "Are Japanese Firms Failing to Catch up in Localization? An Empirical Analysis Based on Affiliate-level Data of Japanese Firms and a Case Study of the Automobile Industry in China," CEI Working Paper Series 2006-16, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  5. Hyeog Ug Kwon, 2007. "Exprots, FDI, and Productivity: Evidence from Japanese Manufacturing Firms," Hi-Stat Discussion Paper Series d07-214, Institute of Economic Research, Hitotsubashi University.
  6. Fukao, Kyoji & Ito, Keiko & Kwon, Hyeog Ug & Takizawa, Miho, 2007. "Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data," CEI Working Paper Series 2006-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  7. Kyoji Fukao & Keiko Ito & Shigesaburo Kabe & Deqiang Liu & Fumihide Takeuchi, 2006. "Do Japanese Firms Fail to Catch up in Localization? An Empirical Analysis Based on Affiliate-level Data of Japanese Firms and a Case Study of Automobile Industry in China," Microeconomics Working Papers 21890, East Asian Bureau of Economic Research.
  8. Tatsuyoshi Miyakoshi & Pekka Ilmakunnas, 2009. "What decreases the TFP ? The aging labor and ICT imbalance," Discussion Papers in Economics and Business 09-03, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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