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Impact of Japanese Mergers on Shareholder Wealth: An Analysis of Bidder and Target Companies

Author

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  • Mehrotra, V.
  • van Schaik, D.
  • Spronk, J.
  • Steenbeek, O.W.

Abstract

The market for corporate control in the second largest economy in the world behaves very different from that in the U.S. Using a sample of 91 mergers in the period 1982-2003 we document several distinctive features of this market in Japan. First, we show that in stark contrast to the pro-cyclical U.S. merger waves, mergers in Japan tend to be counter-cyclical, both with respect to the general economy as well as with respect to stock market valuations. Second, and again in contrast to the U.S. experience, we find that a significant fraction of Japanese mergers are orchestrated by the main banks; in such cases, mergers are not between two weak companies, but at least one of the merging companies is financially strong. Other distinctive features of Japanese mergers are the positive pre-announcement returns accruing to both bidders and targets, with bidders capturing approximately half the gains that accrue to target firms. We also find differential shareholder wealth effects in the bubble period (1982-1989), the early 1990s, and the post-financial regulation regime (1997-2003). Overall our results point to a market for corporate control that is distinctly less shareholder-centered than that in the U.S. and one where creditors play an important, perhaps dominant, role.

Suggested Citation

  • Mehrotra, V. & van Schaik, D. & Spronk, J. & Steenbeek, O.W., 2008. "Impact of Japanese Mergers on Shareholder Wealth: An Analysis of Bidder and Target Companies," ERIM Report Series Research in Management ERS-2008-032-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  • Handle: RePEc:ems:eureri:12597
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    Cited by:

    1. Alex Coad & Masatoshi Kato, 2018. "Growth paths and routes to exit: ‘Shadow of Death’ effects for new firms in Japan," Discussion Paper Series 185, School of Economics, Kwansei Gakuin University.

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    More about this item

    Keywords

    Japanse mergers; corporate control; mergers; take-over;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics

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