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Cross-Border Acquisitions and Target Firms' Performance: Evidence From Japanese Firm-Level Data

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  • Kyoji Fukao
  • Keiko Ito
  • Hyeog Ug Kwon
  • Miho Takizawa

Abstract

Using Japanese firm-level data for the period from 1994-2002, this paper examines whether a firm is chosen as an acquisition target based on its productivity level, profitability and other characteristics and whether the performance of Japanese firms that were acquired by foreign firms improves after the acquisition. In our previous study for the Japanese manufacturing sector, we found that M&As by foreigners brought a larger and quicker improvement in total factor productivity (TFP) and profit rates than M&As by domestic firms. However, it may argued that firms acquired by foreign firms showed better performance simply because foreign investors acquired more promising Japanese firms than Japanese investors did. In order to address this potential problem of selection bias problem, in this study we combine a difference-in-differences approach with propensity score matching. The basic idea of matching is that we look for firms that were not acquired by foreign firms but had similar characteristics to firms that were acquired by foreigners. Using these firms as control subjects and comparing the acquired firms and the control subjects, we examine whether firms acquired by foreigners show a greater improvement in performance than firms not acquired by foreigners. Both results from unmatched samples and matched samples show that foreign acquisitions improved target firms%u2019 productivity and profitability significantly more and quicker than acquisitions by domestic firms. Moreover, we find that there is no positive impact on target firms%u2019 profitability in the case of both within-group in-in acquisitions and in-in acquisitions by domestic outsiders. In fact, in the manufacturing sector, the return on assets even deteriorated one year and two years after within-group in-in acquisition, while the TFP growth rate was higher after within-group in-in acquisitions than after in-in acquisitions by outsiders. Our results imply that in the case of within-group in-in acquisitions, parent firms may be trying to quickly restructure acquired firms even at the cost of deteriorating profitability.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12422.

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Date of creation: Aug 2006
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Publication status: published as Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data , Kyoji Fukao, Keiko Ito, Hyeog Ug Kwon, Miho Takizawa. in International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17) , Ito and Rose. 2008
Handle: RePEc:nbr:nberwo:12422

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Cited by:
  1. Giorgia Maffini & Socrates Mokkas, 2008. "Transfer-pricing and Measured Productivity of Multinational Firms," Working Papers, Oxford University Centre for Business Taxation 0817, Oxford University Centre for Business Taxation.
  2. Chen, Wenjie, 2011. "The effect of investor origin on firm performance: Domestic and foreign direct investment in the United States," Journal of International Economics, Elsevier, Elsevier, vol. 83(2), pages 219-228, March.
  3. Bandick, Roger & Görg, Holger, 2009. "Foreign acquisition, plant survival, and employment growth," Working Papers, Örebro University, School of Business 2009:9, Örebro University, School of Business.
  4. Barbara M. Roberts & Steve Thompson & Katarzyna Mikolajczyk, 2008. "Privatization, Foreign Acquisition and the Motives for FDI in Eastern Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 144(3), pages 408-427, October.
  5. Kaoru Hosono, 2009. "Comment on "Merger Activities and Stock Market Valuation in China (Joint with Yu Zhang)"," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 260-262 National Bureau of Economic Research, Inc.
  6. Julian Wright, 2009. "Comment on "Merger Activities and Stock Market Valuation in China (Joint with Yu Zhang)" 2," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 262-264 National Bureau of Economic Research, Inc.
  7. Joze P. Damijan & Crt Kostevc & Matija Rojec, 2012. "Growing lemons and cherries? Pre- and post-acquisition performance of foreign-acquired firms in new EU member states," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 31812, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  8. ITO Keiko, 2011. "Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case of Japanese firms," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 11063, Research Institute of Economy, Trade and Industry (RIETI).
  9. Masao Nakamura, 2011. "Adoption and policy implications of Japan’s new corporate governance practices after the reform," Asia Pacific Journal of Management, Springer, Springer, vol. 28(1), pages 187-213, March.
  10. Higgins, Huong N., 2013. "Conflicts of interest between banks and firms: Evidence from Japanese mergers," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 24(C), pages 156-178.
  11. Zhu, PengCheng & Jog, Vijay & Otchere, Isaac, 2011. "Partial acquisitions in emerging markets: A test of the strategic market entry and corporate control hypotheses," Journal of Corporate Finance, Elsevier, Elsevier, vol. 17(2), pages 288-305, April.
  12. Giorgia Maffini & Socrates Mokkas, 2009. "Profit Shifting and Measured Productivity of Multinational Firms," Working Papers, Oxford University Centre for Business Taxation 0920, Oxford University Centre for Business Taxation.

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