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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

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  • Kyoji Fukao
  • Keiko Ito
  • Hyeog Ug Kwon

Abstract

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.

Suggested Citation

  • Kyoji Fukao & Keiko Ito & Hyeog Ug Kwon, 2004. "Do Out-In M&As Bring Higher TFP to Japan?: An Empirical Analysis Based on Micro-data on Japanese Manufacturing Firms," Hi-Stat Discussion Paper Series d04-41, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:hstdps:d04-41
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    More about this item

    Keywords

    FDI; TFP; in-in M&A; out-in M&A;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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