Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data

Kyoji Fukao, 京司 深尾, キョウジ フカオ, Keiko Ito, 恵子 伊藤, ケイコ イトウ, Hyeog Ug Kwon and Miho Takizawa

No 2006-18, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: Using Japanese firm-level data for the period from 1994-2002, this paper examines whether a firm is chosen as an acquisition target based on its productivity level, profitability and other characteristics and whether the performance of Japanese firms that were acquired by foreign firms improves after the acquisition. In our previous study for the Japanese manufacturing sector, we found that M&As by foreigners brought a larger and quicker improvement in total factor productivity (TFP) and profit rates than M&As by domestic firms. However, it may argued that firms acquired by foreign firms showed better performance simply because foreign investors acquired more promising Japanese firms than Japanese investors did. In order to address this potential problem of selection bias problem, in this study we combine a difference-in-differences approach with propensity score matching. The basic idea of matching is that we look for firms that were not acquired by foreign firms but had similar characteristics to firms that were acquired by foreigners. Using these firms as control subjects and comparing the acquired firms and the control subjects, we examine whether firms acquired by foreigners show a greater improvement in performance than firms not acquired by foreigners. Both results from unmatched samples and matched samples show that foreign acquisitions improved target firms' productivity and profitability significantly more and quicker than acquisitions by domestic firms. Moreover, we find that there is no positive impact on target firms' profitability in the case of both within-group in-in acquisitions and in-in acquisitions by domestic outsiders. In fact, in the manufacturing sector, the return on assets even deteriorated one year and two years after within-group in-in acquisition, while the TFP growth rate was higher after within-group in-in acquisitions than after in-in acquisitions by outsiders. Our results imply that in the case of within-group in-in acquisitions, parent firms may be trying to quickly restructure acquired firms even at the cost of deteriorating profitability.

Keywords: FDI; TFP; Acquisition; Selection bias; Propensity score matching; Average treatment effect (search for similar items in EconPapers)
JEL-codes: C14 D24 F21 F23 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2007-02
New Economics Papers: this item is included in nep-cfn, nep-com and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13491/wp2006-18a.pdf

Related works:
Chapter: Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data (2008)
Working Paper: Cross-Border Acquisitons and Target Firms' Performance: Evidence from Japanese Firm-Level Data (2006)
Working Paper: Cross-Border Acquisitions and Target Firms' Performance: Evidence From Japanese Firm-Level Data (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2006-18

Access Statistics for this paper

More papers in CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Reiko Suzuki ( this e-mail address is bad, please contact ).