M&A in Japan: An Analysis of Merger Waves and Hostile Takeovers

The number of mergers between large companies has been low and hostile takeover cases have been rare in post-war Japan. Since the 1990s total M&A activity is increasing in number of cases and value, and coinciding with this trend, hostile tender offer attempts are also more frequent. Previous research argues that the low level of merger and hostile takeover activity is caused by three institutional elements within the Japanese society: the main bank system, the horizontal keiretsu, and the specific Japanese culture. Regarding mergers we examine whether the main bank system influences merger activity of companies. With two event studies we show that involvement of a main bank does not create shareholder wealth in mergers. The main bank appears to act in order to protect its own interests as creditor. With reference to hostile takeovers we show that it is important to make a distinction between greenmail and hostile tender offers. We build an institutional model and show that it is necessary to consider each institutional element from a broad and historical perspective. Finally, we indicate that the low number of hostile tender offers might be explained by the vertical keiretsu and trade association.

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