The Market for Corporate Subsidiaries in Japan: An empirical study of trades among listed firms

We investigate the economic role of trades in corporate subsidiaries in Japan between 1996 and 2010, in terms of valuation and performance effects. By pairing both sides to each deal, we show differences in firm characteristics, returns, and subsequent performance of buying and selling firms. Unlike mergers among whole firms, most subsidiary deals straddled different industries. Most sellers were larger, more diversified and less profitable than the buyers. Our event study reveals that abnormal returns were positive for buyers yet insignificantly different from zero for sellers, with the notable exception of subsidiary sales in the core business, which earned negative returns, the more so the larger the deal. An analysis of ex-post operating results shows that the performance of sellers often declined after the trade, in particular for firms that divested a core-related subsidiary. We conclude that subsidiary trades in Japan in this period contributed importantly to strategic repositioning and a more efficient use of corporate assets.