The Impact of Foreign Acquisition on Japanese Firms

Inward foreign direct investment can contribute to the Japanese economy. However, there remains a question as to whether mergers and acquisitions (M&A) by foreign firms can improve business conditions for the acquired Japanese firms. To estimate the causal impact of foreign M&A on Japanese firms, this paper constructs a new panel dataset for the period 2000-2019 by linking the Survey of Trends in Business Activities of Foreign Affiliates with the Basic Survey of Business Structure and Activities. Specifically, this paper examines the impact of foreign M&A on sales, profits, and employment of Japanese firms and investigates the characteristics of acquired Japanese firms. A propensity-score weighting regression is employed to address a selection issue by foreign firms. My panel data include the firms that survived as corporate entities subsequent to the acquisition, but do not cover the firms that are merged by foreign investors and the business divisions that were carved out. The results show that sales, profits, and employment of acquired Japanese firms tend to decrease after foreign M&A. Acquired Japanese firms in non-manufacturing sectors can increase their sales, suggesting that it is crucial to further investigate the underlying conditions for which foreign M&A improves the business conditions.