Economic Analysis of M&A in Japan: International Characteristics and Economic Role

Author Name MIYAJIMA Hideaki  (Faculty Fellow, RIETI)
Creation Date/NO. June 2007 07-J-026
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The Japanese economy is currently experiencing a major merger and acquisition (M&A) boom unprecedented in its postwar economic development. The purpose of this paper is to cast light, from a number of angles, on the determinants of the rapid increase in M&A activity in Japan since the end of the 1990s, and its economic role.

First, the paper examines the international characteristics of M&As in Japan with regard to the reasons why they have occurred and the characteristic form they have adopted. It emphasizes the fact that while the M&A boom that has occurred in recent years has factors in common with the global boom, for example growth opportunities created by technological innovation and deregulation, it is also based on factors unique to Japan, such as the economic shock, which have led to over-investment and the development of the legal system for business combinations. In addition, among the characteristics of M&As in Japan it indicates the strong tendency for amalgamations, acquisitions, capital participations, etc., by holding companies in order to maintain the independence of the target companies, and shows that principally these take the form of offsetting transactions between the parties concerned. This characteristic differs sharply from the form adopted in the U.S. and British M&A markets, which are characterized by a strong tendency to opt for mergers (integration of corporations) by means of arm's-length transactions. Also stressed is that, with regard to the relationship between the evolution of the Japanese corporate system and M&As, the dismantlement of the traditional Japanese corporate system has hastened the M&A boom, and because the system has evolved into a hybrid form, this feature itself has given M&A activity in Japan its own unique character.

Second, the paper summarizes the economic role fulfilled by increasing M&As from the perspective of focusing on their duality. Its basic message is that since the end of the 1990s M#As have helped to enhance the efficiency of resource allocation in the Japanese economy and of companies' organizational efficiency; that the activities of activist funds have had a positive impact on share values and have influenced the financial policies of the target companies; and that we have not yet seen the systematic occurrence of negative aspects of M&As, such as management overconfidence, the overvaluation of stock markets, and the breakdown of trust between stakeholders as a result of M&As.