Mapping Out the Japanese Mergers & Acquisitions Patterns - The Influence of Macro Factors on M & As

Mergers and acquisitions (M&As) are not a new phenomenon in Japanese business. Especially after the end of the Allied occupation of Japan, the number of domestic M&As rose sharply due to the reconsolidation of former Zaibatsu firms broken up by the occupation authorities. During the Japanese post-war economic recovery, M&As between non-keiretsu firms became more and more common. After the burst of the “bubble” economy in 1991 a new era of M&A started. Together with deregulations in a number of non-tradable sectors, a relatively large number of foreign firms have entered the Japanese market, using M&As as a tool of market entry. In many sectors, the sudden exposure to international competition has forced the incumbent firms in the formerly protected industries to restructure and streamline their operations in order to survive the new order. For the foreign firms, the opened-up economy has meant new business opportunities, and a chance to compete on more equal terms with the Japanese firms on their home market. For Japanese firms, international M&As have become a viable alternative to domestic ones due to market liberalization and the economic realities of the 1990s. Furthermore, foreign firms have now discovered M&A as a cheaper tool to enter a new market and achieve market-specific knowledge, instead of trying to force a market entry through expensive greenfield investments and joint ventures. Here, it is interesting to ask to what extent macro factors have influenced the M&A pattern in Japan. Does economic activity matter for the Japanese M&A activities, or have they lived “their own life”? What are the effects of institutional changes on the M&A pattern during the 1990’s? In this paper, the short-run pattern of Japanese post-bubble inward (cross-border) and domestic M&As is analyzed econometrically, using macroeconomic data and data on Japanese M&A.