To Merge And Acquire When The Times Are Good? The Influence Of Macro Factors On The Japanese M&A Pattern

After the burst of the "bubble" economy and the subsequent recession of the 1990's, a new era of M&A started in Japan. Following the deregulation 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 for market entry. In many sectors, the sudden exposure to international competition forced the Japanese 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 offered new business opportunities, and a chance to compete on more equal terms with the Japanese firms in their home market. Furthermore, foreign firms have now also discovered M&As as a cost-efficient tool to enter the Japanese market and achieve market-specific knowledge, instead of making expensive greenfield investments and joint ventures. 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. Here, it is interesting to ask to what extent macro factors have influenced the pattern of M&As in Japan. Can macroeconomic variables explain the Japanese M&A activities, or do other factors explain them? 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 Japanese macroeconomic and M&A data. The conclusions are that the post-reform pattern represents a significant shift from the previously low levels of M&As, and that domestic and inward M&As are influenced differently by macro factors, suggesting differing rationale for doing M&As. The estimation results also suggest some support for the "fire sale" argument as a driving force for Japanese M&As during the period of post-bubble recession.