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Does Japanese Business Group Membership Improve Post-Merger Performance?

Author

Listed:
  • Kentaro Kaneko

    (University of Tokyo)

  • Reiko Kashiwazaki

    (University of Tokyo)

  • Fumiko Takeda

    (University of Tokyo)

Abstract

This study examines whether merger performance is different between member companies of a Japanese business group (keiretsu) and independent companies. The six largest keiretsu groups with a long history are the focus (Mitsubishi, Mitsui, Sumitomo, Fuyo, Sanwa, and Daiichi Kangyo). Using data on mergers between Japanese-listed companies for 1985–2014, this study investigates the role of keiretsu groups on post-merger performance including company stock price, number of employees, and research and development. The event study shows that the stock prices of acquirers react less positively to announcements for within-group mergers than for mergers between independent firms. In addition, acquirers of within-group mergers tend to increase the number of employees and average annual salary but decrease the ratio of research and development after mergers. Such reduced ratio of research and development is not observed for acquirers of other types of mergers. In addition, the targets of within-group mergers tend to have higher leverage than other targets. Our results indicate that within-group mergers do not seem to aim at enhancing economic performance of acquirers but rather at rescuing troubled targets and are, thus, perceived unfavorably by market participants.

Suggested Citation

  • Kentaro Kaneko & Reiko Kashiwazaki & Fumiko Takeda, 2020. "Does Japanese Business Group Membership Improve Post-Merger Performance?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(1), pages 45-57, February.
    • Handle: RePEc:kap:iaecre:v:26:y:2020:i:1:d:10.1007_s11294-020-09768-2
    DOI: 10.1007/s11294-020-09768-2
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    References listed on IDEAS

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    1. Mehrotra, Vikas & van Schaik, Dimitri & Spronk, Jaap & Steenbeek, Onno, 2011. "Creditor-Focused Corporate Governance: Evidence from Mergers and Acquisitions in Japan," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(4), pages 1051-1072, August.
    2. G. Alexandridis & D. Petmezas & N.G. Travlos, 2010. "Gains from Mergers and Acquisitions Around the World: New Evidence," Financial Management, Financial Management Association International, vol. 39(4), pages 1671-1695, December.
    3. Flath, David, 1993. "Shareholding in the Keiretsu, Japan's Financial Groups," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 249-257, May.
    4. Cassiman, Bruno & Colombo, Massimo G. & Garrone, Paola & Veugelers, Reinhilde, 2005. "The impact of M&A on the R&D process: An empirical analysis of the role of technological- and market-relatedness," Research Policy, Elsevier, vol. 34(2), pages 195-220, March.
    5. Flath, David, 2014. "The Japanese Economy," OUP Catalogue, Oxford University Press, edition 3, number 9780198702405.
    6. Huong N. Higgins, 2018. "Banks and Corporate Decisions: Evidence from Business Groups," Financial Management, Financial Management Association International, vol. 47(3), pages 679-713, September.
    7. Bertrand, Olivier & Zuniga, Pluvia, 2006. "R&D and M&A: Are cross-border M&A different? An investigation on OECD countries," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 401-423, March.
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    Cited by:

    1. Tomeczek, Artur F., 2022. "The evolution of Japanese keiretsu networks: A review and text network analysis of their perceptions in economics," Japan and the World Economy, Elsevier, vol. 62(C).
    2. Yipeng Liu & Ralf Bebenroth & Yi Yang, 2022. "East-Meets-West: Mergers and Acquisitions challenges and opportunities in and out of Asia," Asian Business & Management, Palgrave Macmillan, vol. 21(5), pages 715-744, November.

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    More about this item

    Keywords

    Merger; Stock price; Employment; Research and development;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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