Do Mergers Improve Corporate Performance? Analysis of corporate activities based on joint RIETI/METI survey

This paper analyzes changes in corporate performance pre-and post-merger, using a database of 1,590 corporate mergers (including unlisted companies), which took place between 1994 and 2002. The database was created using RECOF Corporation's M&A data and firm-level data from the Basic Survey of Japanese Business Structure and Activities of the Ministry of Economy, Trade and Industry. When measuring changes in the performance of companies immediately before and after mergers - which is done by dividing the samples into three categories: all industries, manufacturing, and non-manufacturing and controlling the performance of target companies using the Propensity Score Matching method-significant falls in indicators such as the total factor productivity (TFP) level, return on assets (ROA), the cash flow ratio, and the debt ratio become apparent, particularly in manufacturing. Meanwhile, when looking at changes in performance immediately after the merger and subsequently, to take into account integration costs at the time of the merger, we find that ROA and the cash flow ratio improve in both manufacturing and non-manufacturing but that the improvement occurs sooner in non-manufacturing. When analyzing changes in performance immediately after a merger, by type of merger, an improvement in TFP, ROA, and the cash flow ratio is quite evident in mergers between affiliated companies and mergers involving different industries in the case of manufacturing. These results suggest that the magnitudes of adjustment and transaction costs associated with mergers differ between manufacturing and non-manufacturing industries and between affiliated companies and companies in different industries. They can be interpreted as suggesting that mergers between different industries in manufacturing manifest synergies as a result of economies of scale, among other factors.