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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

  • Kyoji Fukao
  • Keiko Ito
  • Hyeog Ug Kwon

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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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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  1. 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.
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  8. 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.
  9. Ito, Keiko & Fukao, Kyoji, 2005. "Foreign direct investment and trade in Japan: An empirical analysis based on the Establishment and Enterprise Census for 1996," Journal of the Japanese and International Economies, Elsevier, vol. 19(3), pages 414-455, September.
  10. 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.
  11. Kyoji Fukao & Keiko Ito, 2003. "Foreign Direct Investment and Services Trade: The Case of Japan," NBER Chapters, in: Trade in Services in the Asia Pacific Region, NBER East Asia Seminar on Economics (EASE), Volume 11, pages 429-480 National Bureau of Economic Research, Inc.
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  14. 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.
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