Development Bank of Japan
Research Report
No. 59

Do M&A Improve Corporate Financial
Performance in Japan?

March 2007

Economic and Industrial Research Department
Development Bank of Japan

This report was originally published in Japanese as Chosa No. 93
in December 2006.

Contents
Summary ........................................................................................................................................

iii

I

Introduction............................................................................................................................

1II

Trends in Japan’s M&A Market..........................................................................................
1. The Growth in Japan’s M&A Market ..................................................................................
2. Changes in the Macroeconomic Environment Since the Second Half of the 1990s........
3. M&A Objectives and Characteristics of Some Recent Transactions ...............................

2
2
5
6

III The Relationship Between Capital Investment and M&A.................................................

17

IV Analysis of the Effect of M&A on Financial Performance...................................................
1. Review of the Literature and Empirical Results .................................................................
2. Description of Data and Estimation Equation ....................................................................
3. Analysis of the Effect of M&A on Corporate Financial Performance.............................
4. Analysis of the Effect of Business Transfers on Corporate Financial Performance ........

19
19
20
21
23

Conclusion ............................................................................................................................................

26

Appendix 1

Number of M&A by Industry and ROA ...........................................................

27

Appendix 2

Three-way Mergers (Comparison with Mergers Using Subsidiaries
in the Former Commercial Code) ............................................................................

29

References ............................................................................................................................................

31

Development Bank of Japan Research Report/ No. 59 i

Do M&A Improve Corporate Financial Performance in Japan?
Summary
1. During the “lost decade” following the collapse of the bubble economy, Japanese firms
have been actively restructuring to overcome theso-called “three excesses” (in employment, investment, and debt) and to revitalize their businesses. At the same time, business objectives
have shifted from the traditional focus on expanding market share to a greater focus onshareholder value and the need to raise profitability. In this context, mergers and acquisitions(M&A) have received greater attention as ameant to achieve an optimal allocation of resources and improve corporate profitability.
2. Although Japan’s M&A market remains
small when compared to that of the United Statesand Europe, there has been a marked expansion
since the latter half of the 1990s, and the numberof M&A transactions posted a new record high in2005. M&A between Japanese firms are becoming increasingly commonplace as a means forbusiness restructuring. Yet, despite the substantial increase in M&A activity, there are few
studies to date that have quantitatively examinedthe effect of M&A on firms’ profitability.
Against this background, this paper aims to provide an examination of recent developments inJapan’s M&A market both from a macro and a
micro perspective. Specifically, using corporate
financial data of listed firms, this study conducts
an empirical analysis of whether M&A help toimprove the performance of acquiring firms, asmeasured by profitability, productivity, etc. The
results indicate what conditions are necessary for
M&A transactions to be successful.
3. Changes in the overall economic environment that have contributed to the increase in
M&A activity include: (a) the decrease in the
return on assets (ROA); (b) reform in the legal
framework for M&A, including the revision of
the tax system; and (c) the unwinding ofcross-shareholdings. ROA have been on a
downward trend for industry overall (and for in-dividual industries) since the late 1990s, increasing incentives for firms suffering from low profitability to restructure their business portfolios.
Changes in the legal framework include the revision of the Anti-Monopoly Law in 1997, the introduction of stock swaps and stock transfers,
and the corporate divestiture system – all ofwhich helped to facilitate M&A transactions.
These legal reforms played an important role inproviding firms with incentives to conduct
M&A.
4. The most important reasons why firms havebeen conducting M&A include: (a) the exploitation of synergy effects through rationalizationand economies of scale; (b) opportunities to increase corporate value (through business rehabilitation, buyouts, etc.), such as in the case of
M&A involving investment funds; and (c) defensive strategies. A review of major individual
cases in recent years shows that the balance of
these objectives has changed over time. From thelatter half of the 1990s to around 2001, M&A
were largely driven by industry consolidation
aimed at the exploitation of synergy effects aswell as by the advance into overseas markets. In
addition, a number of foreign-owned financial
institutions expanded into the Japanese market
by acquiring failed Japanese firms. From 2002,
M&A focusing on corporate rehabilitation led by
the government, banks, and private investment
funds, became prevalent following the initiationof the financial reconstruction program. In thiscontext, it is worth noting that the objective ofinvestment funds, whose presence in the M&A
market in Japan has increased in recent years, is
not the traditional takeover of a firm. Rather, investment funds dispatch management resources
and after a certain period, once the acquired firmhas been put on an even keel, sell it again. Sincearound 2003, investment funds have also been
involved in the purchase of non-core businesses(for example through management buyouts) frommature firms that were in the process of restructuring in order to concentrate on core capabilities.
In 2004, the objective of M&A activity began toswitch from rehabilitation to growth, and since
Development Bank of Japan Research Report/ No. 59 iii

2005, proactive M&A aiming at the exploitationof synergy effects as part of mid- to long-term
growth strategies have become more prominent.
In this context, M&A activity focused on the acquisition of firms (or business units) that would
help to strengthen the existing business of acquiring firms rather than on the acquisition offirms (or business units) in entirely unrelatedareas. At the same time, defensive strategies tofend off hostile takeover attempts following thestruggle surround UFJ Trust Bank also started totake root.
5. If M&A are increasingly proactive as part offirms’ growth strategies, then the relationshipbetween M&A and capital investment and firms’
choice between them becomes a question of considerable interest. In order to examine this issue,
this study relies on data constructed from theDevelopment Bank of Japan’s Survey on
Planned Capital Spending in November 2005,
matching firms’ responses to a question in thesurvey on whether they were planning to acquire
assets or business divisions from another firmwith information on their fixed capital investment growth rate in that year (FY2005) and thefollowing year (FY2006). The findings suggestthat with regard to M&A based on medium- tolong-term growth strategies, among firms that
responded that they were planning to conduct
M&A, those that also maintained a “proactive”
stance and were planning to increase fixed capital investment both in FY2005 and FY2006 accounted for the largest share, while those that
replied they would decrease investment accounted for only 9 percent.This indicates that forfirms embarked on an expansionary course,
M&A and fixed capital investment complement
each other.
6. Although there are number of studies thathave examined whether M&A improve the performance of acquiring firms, they encounteredproblems with regard to the robustness of theirempirical results. Moreover, there have been few
investigations into the conditions that make forsuccessful M&A. Taking these shortcomings ofprevious studies into account, this study focuses
on mergers, acquisitions, and business transfers
in order to empirically examine the effect ofiv

Development Bank of Japan Research Report/ No. 59

M&A on the profitability (ROA, operating
profit-to-sales ratio), labor productivity and theratio of general expenses to sales of acquiringfirms(including the seller side in the case ofbusiness transfers) by distinguishing whether theacquired firm belongs to the same corporategroup 1 or is a non-group firm and whether it islisted or unlisted. 2 The results can be summarized as follows:a. As for mergers and acquisitions, the results
indicate that the improvement in the financial
performance of the acquiring firm was statistically significant and largest when the acquired firm belonged to the same corporategroup and was listed on the stock exchange,
and this result was robust. This indicates thatin cases where an M&A target is acquired by
the parent firm (the largest shareholder), thepower balance between the two is unambiguous and decisions following the acquisition
are speedily transmitted to the acquired firms;
moreover, the acquiring firm is able to accumulate information on the target firm (going
beyond financial statements) before the acquisition through the dispatch of board
members and therefore is in a situation where
it can discern profitable and unprofitablebusiness divisions and decide whether to go
ahead. In addition, the management of listed
target firms are likely to show a greater
profit-orientation as a result of the discipline
exerted by the stock market. The results ofthe empirical analysis thus suggest that clarity with regard to the power balance, the extent of information accumulation, andwhether target firms are subject to market
discipline prior to the acquisition all play animportant role in the extent to which the performance of the acquiring company improves.
Moreover, when comparing the estimation results for cases where the target firm is
1

An acquired company’s being a “same corporate group”
indicates that it is a subsidiary, or affiliate, of the acquiring
company.
2
Samples were grouped into four specific categories: (1)listed companies which were subsidiaries (affiliates), (2)listed companies which were not subsidiaries (affiliates), (3)companies which were subsidiaries (affiliates) but unlisted,and (4) companies which were neither subsidiaries (affiliates) nor listed.

an unlisted group firm and cases when thetarget firm is a listed non-group firm, the improvement in the acquiring firm’s ROA issignificantly larger in case of the former. Thissuggests that clarity in the power balance andthe accumulation of information vis-à-vis thetarget company is relatively more important
than the target company being listed on thestock exchange in determining the success ofan M&A transaction for the acquiring firm.
Moreover, the accumulation of information
also plays an important role in shaping therelationship between the acquiring and theacquired firms. That is to say, the positive effect on the acquiring firm’s finances will begreater if before going ahead with the acquisition, it slowly accumulates information on
the acquired firm and then gradually increases it investment following the initial
capital participation. As for the role of market
discipline, although doubts have been expressed whether the disciplining function of
the Japanese stock market is sufficient given
the practice of long-term shareholding, thenumber of firms that have a diversified
shareholder structure is increasing and hence
the importance of being listed on the stock
market is likely to grow as a criterion for acquiring firms in their choice of M&A targets.
However, even if market discipline func-

tioned sufficiently, if there are healthy firmsthat choose not to list because of the costs
involved or for strategic reasons, a gradualist
approach may still help to raise the effect on thefinancial performance of acquiring firms when
acquiring such unlisted firms.
b. Business transfers consist of the transfer ofassets involving not an entire company but abusiness unit and as such are expected tocontribute to the efficient allocation of resources between firms and help to improve
profitability. Looking at the empirical results,
although no significant effects on ROA were
found, buyers of assets in non-group business
transfers and sellers in the case of both intra-group and non-group business transfers
were found to register improvements in operating profit-to-sales ratios and labor productivity. Given that M&A activity in recent
years has concentrated on the strengtheningof core business areas, acquisitions of businesses related to core activities and the saleof non-core businesses were shown to lead toan improvement in profitability both for sellers and buyers.
[H. Iwaki (E-mail: hiiwaki@dbj.go.jp)]

Development Bank of Japan Research Report/ No. 53 v

I

Introduction

Although M&A activity has been expanding in
United States and Europe, M&A have received
greater attention as a means for business restructuring and strengthening core business in Japanand the number of M&A transactions posted a
new record high in 2005. Yet, despite the substantial increase in M&A activity, there are few
studies to date that have quantitatively examinedthe effect of M&A on firms’ profitability. This
paper starts with a description of Japan’s market
for M&A in both macro- and microeconomic
perspectives. Then, using corporate financial
data of listed firms ,we analyze to determine
whether M&A help to improves the performanceof acquiring firms as measured by profitability ,productivity, etc and indicate what conditions
are necessary for M&A transactions to be successful.
The paper is organized as follows. Section II
describes Japan’s M&A market in macroeco-

nomic perspectives, the background to its recent
expansion, and, from a microeconomic perspective, the reasons for selecting M&A. We indicate
objectives to M&A in Japan and some characteristics by organizing recent transactions. As proactive M&A have become more prominent since2005 in Section II , Section III explores the relationship of M&A with capital investment, which
is one of the most important factors for a company to achieve its mid- to long-term growthstrategy. Section IV focuses on mergers, acquisitions and business transfers among firms in order
to empirically examine the effect of M&A on the
profitability (ROA and operating profit-to-saleratio), labor productivity, and ratio of general
expenses to sales of acquiring firms, including
the seller side in the case of business transfers.
By distinguishing whether the acquired firm belong to the same group or not and whether it islisted or not, we indicate those conditions which
enhance the improvement in the financial performance of acquiring firm by M&A.

Development Bank of Japan Research Report/ No. 59 1

II Trends in Japan’s M&A
Market1.

The Growth in Japan’s M&A Market

Figure 2-1 indicates trends in the number of
M&A transactions carried out in Japan. The figure shows clear increases in Japan’s M&A 3
market during two periods: 1) from the latter halfof the 1980s through the bubble period, and 2)
from the latter half of the 1990s to the presentday. Growth was particularly notable during thesecond of these periods: In 2005, the number of
M&A deals, both within and outside of a corporate group, was greater than at any other time inhistory. 4
During the latter half of the 1980s, mostM&A transactions involved Japanese firms targeting a foreign firm as a partner (“in-out” deals).
From the latter half of the 1990s, however,“in-in” deals, meaning M&A between Japanesefirms, developed a growing presence in the market. By 2005, M&A targeting Japanese firms,
including “out-in” deals, accounted for morethan 80 percent of the total, implying that thedepth of the Japanese market was increasing(Figure 2-2).
Of M&As conducted outside of the corporate group, over 80 percent took the form of acquisition, business transfer, or capital participation; mergers accounted for only a small proportion (Figure 2-3). Among those taking place
within the corporate group, mergers accounted
for the largest share, with business transfers
showing growth as well (Figure 2-4). The growthin business transfers is thought to reflect a risk
aversion strategy on the part of firms which,while pursuing selection and concentration on
the business level, are also seeking to improve
investment efficiency and have no wish to assume excessive risk in regard to the partnercompany.

Figure 2-1. The M&A Market in Japan(Number of transactions)transactions)(Number

4,000
3,734

3,500
3,000

2,725
2,500

Total
T otalWithin group
group
Outsidegroup
Outside group

2,000
1,500

1,009

1,000
500
(CY)
0
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Source:Recof MARR.

3

In this paper, “M&A” is as defined in the Recof periodical
MARR, and refers to mergers, acquisitions, business transfers, capital participation, and investment expansion.
4
According to MARR, M&A shows a virtually identicaltrend in terms of monetary value. The total in 2004 reached
12 trillion yen, and the same level was maintained the following year. It should be noted, however, that the total
value of transactions in MARR reflects reported cases only,
and for that reason coverage will differ from that based on
the number of cases.
2

Development Bank of Japan Research Report/ No. 59

Figure 2-2. M&A Outside of the Corporate Group, by Market(%)
100

Over 80%

80
60
40
20
0
85

87

89

91

93

95

97

01

03

05
(CY)

OUT-INOUT -IN(Share)(Share)

IN-IN(Share)
IN-IN (Share)
IN-OUT(Share)IN-OUT (Share)

Source:99

OUT -OUT(Share)(Share)OUT-OUT

Recof MARR.

Figure 2-3. M&A Outside of the Corporate Group, by Form
(Number of transactions)

(%)
100

1,200

80

1,000
800

60

600
40

400

20

200
0

0
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05(CY)
CapitalCapitalparticipation
participation
Mergers
Mergers
Acquisitions
Acquisitions(number)(number)
Capital(number)
Capitalparticipation
participation（ number ）Acquisitions
Acquisitions
Business transfers
transfers
Investment
Investmentexpansion
expansion
Business transfer
transfer(number)(number)

Source:Recof MARR.

Figure 2-4. M&A Within the Corporate Group, by Form
100

(Number of transactions)

(%)

700
600

80

500
60

400

40

300
200

20

100

0

0
90

91

92

93

94

95

Mergers
Mergerstransfers
Business transfers
Investmentexpansion
expansion
Investment
Acquisitions(number)(number)
Acquisitions

Source:

96

97

98

99

00

01

02

03

04

05
(CY)

Acquisitions
Acquisitions
Capitalparticipation
Capital participation
Merger (number)(number)transfer (number)Business transfer(number)

Recof MARR.

Development Bank of Japan Research Report/ No. 59 3

Figure 2-5 shows trends in M&A by industry, for both acquiring and acquired firms. During the latter half of the 1980s, firms in chemicals, machinery, and other manufacturing industries accounted for the largest share. This picturechanged in the next decade: By the latter half ofthe 1990s, the non-manufacturing sector, particularly the entertainment, telecommunications,and financial services industries, was a growing
presence, accounting for some 70 percent of all
M&A in 2005.
Partners in an M&A are not limited to otherbusiness corporations. One player of increasing
importance in recent years is the investment
firm(or fund). Figure 2-6 shows the number of
M&A transactions involving investment firms,
and their share in the total number of M&A deals(including those within and outside of the corporate group). In 1998, there were only two M&Atransactions involving investment firms. By 2005,
however, this number had swelled to 359, withthe share in the total number of M&A deals rising to nearly 10 percent.

Figure 2-5. Trends in the Share of M&A Transactions, by Industry(Acquired firms)(Acquiring firms)

(%)

(%)

80

60

60

50

50

40

40

30

30
20

20

10

10

0

0

85

87

89

91

93

95

Source:

97

99

01

03

05 85

87

(CY)
Non-manufacturing business

Manufacturing

89

91

93

95

97

99

01

03

05

(CY)
Entertainment+Telecommunications+Financial serves

Recof MARR.

Figure 2-6. Trends in the Number of M&A Transactions with Japanese Companies,
by Investment Firms
400

(%)

(Number of transactions)

10

350
8

300
250

6

200
4

150
100

2

50
0

0
98

Source:

4

70

70

99

00

01

02

03

04

IN-IN

OUT-INOUT-OUT

Share (right scale)

Recof MARR.

Development Bank of Japan Research Report/ No. 59

05
(CY)

2.

Changes in the Macroeconomic Environment Since the Second Half of the 1990s

The previous subsection described the rapid expansion of Japan’s M&A market since the latter
half of the 1990s. Several changes in the macroeconomy are thought to have contributed tothat growth.
The first of these was the deteriorating tendency of corporate profits. Figure 2-7 shows theaverage five-year ROA for all industries 5 , andthe frequency of M&A (the number of M&Atransactions/number of firms), since 1985. ROA,
having remained at the 7-percent level for thelatter half of the 1980s, dropped to about 4 percent in the latter half of the 1990s. The sametendency was evident in individual industries, 6
indicating a progressive decline in capital profitability throughout the economy. The frequency
of M&A, meanwhile, showed a moderate increase industry-wide during the same period,
followed by an actual surge starting in 2000. The
decline in capital earnings was the result of aconcurrence of factors, including the excess investment during the bubble periods and recession
after the collapse of the bubble. We can infer thatthe macroeconomic conditions in this periodgave firms the incentive to boost efficiency byreorganizing their entire portfolios, including
through M&A.
Progress in institutional reforms was a second important change. Without assured convenience for their transactions, firms hoping to restructure cannot easily conduct M&A, regardlessof how strong the incentive. The first legal revision that affected M&A since the latter half ofthe 1990s was the amendment of theAnti-Monopoly Law in June 1997, which removed the ban on the establishment of pureholding companies. Changes have since takenplace at a rapid pace, 7 with systems being intro5

ROA is defined as (operating profit and loss + nonoperating income)/total assets.
6
For M&A frequency and ROA in individual industries,
see Appendix 1.
7
The revisions made to the Corporation Law in May 2006
enhance the convenience of transactions by providing for,among other things, increased payment flexibility (applied
since 2007) and speedier reorganization. Previously, assets
delivered to the shareholders of another company during amerger, corporate divestiture, or stock transfer were re-duced to govern simple mergers (1997),
share-for-share exchange and share transfer(1999), and corporate divestiture (2001). Each ofthese revisions has increased convenience forparties to an M&A. Under the new system forshare-for-share exchange, a firm can easily convert another firm into a 100-percent subsidiarythrough an exchange of shares with that company, without the buyer firms having to prepare
slush funds. The new, more convenient corporate
divestiture system is similar to the systems forshare-for-share exchange and share transfer, inthat firms can use shares for payment. The introduction of these systems made it possible forfirms to reschedule, under certain conditions(terms of eligibility 8 ), taxes ordinarily occurringon capital gains. 9
The unwinding of cross-shareholdings also
helped to improve the environment for M&A.
Figure 2-8 shows the ratio of cross-shareholdings
to the aggregate market value and share price.
stricted in principle to the shares of the surviving company(Articles 409, 374 and 353 of the former Commercial code).
The revisions made it possible to use other forms of payment, such as cash, corporate bonds, and bonds with a rightto subscribe for new shares (Articles 749, 758 and 768).
Under the former law – and in principle under the current
Corporation Law (Article 135) – a subsidiary was not permitted to acquire shares in its parent company. But the current Corporation Law permits this act in exceptional cases
during mergers and some other transactions (Article 800),
effectively legalizing three-way mergers by foreign companies (see Appendix 2). There was the perspective that one
effect of this revision will be to increase the number ofmergers and acquisitions by foreign firms through their
Japanese subsidiaries. Under the existing tax system, however, shareholders in a company targeted for an M&A must
pay a capital gains tax when the share other than surviving
firm was paid for shareholders of the target firm. The capitalgains tax applies because the assets delivered to the target
company in a three-way merger are shares not in the surviving firm but in the parent firm. If companies are notpermitted to reschedule this tax, they will have less incentive to use the system. Speedier reorganization indicatessoftening conditions that a shareholders’ meeting isn’t
required in case of considering corporate reorganization. By
revising, a new, informal system of corporate reorganization
and amends the simplified reorganization system are introduced.
8
It indicates the case where the surviving firm pays forshareholders of the counterpart firm in any form other thanshares of the surviving firm.
9
A study by Suzuki, Yasui, Ochi and Okuda pointed to theintroduction of a consolidated taxation system as a measurethat encouraged business reorganization in their paper(2003).
Development Bank of Japan Research Report/ No. 59 5

Since the latter half of the 1990s, business firms
and banks have moved increasingly quickly to
rid themselves of cross-shares: in 2003, thecrossholding ratio of 7 percent was less than halfwhat it was during the peak years. Behind thistrend was the influence of the recession, downturn of share prices and BIS regulations. Withfewer cross-shareholdings, more shares cameonto the market, and there was a greater varietyof target firms for acquiring firms. The trend thus

spurred the growth of M&A.
3.

M&A Objectives and Characteristics ofSome Recent Transactions

With changes in the macroeconomic environment acting as a spur to M&A transactions, it
becomes important to identify the incentives thatare causing firms to turn to M&A. This task has
been attempted in some surveys, including those

Figure 2-7. M&A Frequency and ROA on an Industry-wide Basis
(%)

(%)

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0

(CY)
85-89

90-94
M&A frequency

95-99

8
7
6
5
4
3
2
1
0

00-06
ROA (right scale)Notes: 1. Figures for ROA are five-year averages (or a six-year average for the most recent period).
2. “M&A frequency” is defined as the number of M&A transactions / number of firms during each period. The
number of M&A transactions constituting the numerator is the aggregate value for five years (or for six years
for the most recent period). The number of corporations constituting the denominator is the number of firms
covered by the Statistical Survey on Establishment and Enterprise Census carried out during each period (86,91, 96, and 01; simple surveys excluded).
Sources: Recof MARR and the Ministry of Internal Affairs and Communications, Establishment and Enterprise Census.

Figure 2-8. Cross-shareholding Ratio (by Shareholder) and Stock Prices
(%)

(Yen)
35000

20

30000
15

25000
20000

10

15000
10000

5

5000
0

0
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03(FY)
Held by business corporation
Other
Corss-shareholding ratio(in value)

Held by banks
Nikkei average

Notes: 1. “Cross-held shares” are shares which are recognized as held by two firms reciprocally.
2. “Cross-holding ratio” is the ratio of cross-held shares to the total number of shares covered by the survey.
3. Cross-holding ratios are shown on a value basis.
Source: NLI Research Institute, The Fiscal 2003 Survey of Cross-Shareholding.

6

Development Bank of Japan Research Report/ No. 59

by Trautwein (1990), the Development Bank ofJapan (2003), and the Cabinet Office (2004). In
this section, we examine characteristics of recent
M&A deals, particularly large-scale transactions,and explore the attractions of M&A with reference to earlier studies. 10
Three main objectives present themselves.
The first is the desire of firms to not merelytransfer income, but to obtain the benefits ofsynergy as well. Deals between two businesscorporations, or between two financial institutions, come to mind in this category. But withrationalization taking on increasing importance,
the category includes other objectives such as
the desire to expand – sales networks, production
volume, and so on – and to utilize the economies
of scale to diversify income. A second objectiveis the desire to “regenerate” – to actualize thefirm’s value through its shareholders. For themost part, investment firms are the buyers in thispattern and play the central role in the transaction.
By such means as dispatching board members,
they try to strengthen the firm’s governance andraise its value. A third type of M&A is that undertaken as a defensive strategy. The methods
used here include the management buyout,
cross-shareholding, and the white knight (acountermeasure against hostile takeover bids). In
choosing to take defensive strategies, management has one of two purposes: to maximize thefirm’s value based on a mid- to long-term growthstrategy without laying it open to the threat of
M&A, or simply to protect the top executives
while ignoring the interests of shareholders. 11
The objective for the acquired firm, meanwhile,is the opportunity to boost profitability by withdrawing from unprofitable sectors. We now ex10
The specific projects described herein are as disclosed in
Recof M&A Data Book for Japanese Companies (thoseundertaken from 1999 to 2002) or Recof MARR (those undertaken from 2002 through the first half of 2006). Included
in our list are, in addition to large-scale projects of 100 billion yen or more, projects for which the value has not been
disclosed but which we believe to have a significant impact
on society.
11
Watanabe (2001) states that this factor – the “entrenchment” theory – and the “monopoly of interest” theory (theidea that firms try to obtain the interest of customers who,
because of the expansion of corporate scale, may possess areasonable amount of information but do not have the time
to adequately scrutinize it) were behind the M&A activity
occurring in the financial sector around 2001.

plore some major representative examples of recent years.
Figure 2-9 is a list of M&A transactions
undertaken from 1999 through 2001. 12 It is notable for the preponderance of deals involving industrial restructuring in the financial services andtelecommunications sectors. In the financial services sector, these indicated an attempt by banks
to survive, through restructuring, the financial
crisis brought on by the failure of the Long-Term
Credit Bank of Japan and the Nippon Credit
Bank. The Dai-ichi Kangyo Bank, Industrial
Bank of Japan, and Fuji Bank joined together toform Mizuho Holdings, 13 while the Bank of Tokyo-Mitsubishi, Mitsubishi Trust & Banking
Corporation, and Nippon Trust Bank formed the
Mitsubishi Tokyo Financial Group. 14 Both ofthese transactions involved the establishment of a
joint holding company, suggesting that behindthe firms’ intentions was a desire to boost efficiency by consolidating overlapping divisions
while retaining the special features of each. In
the telecommunications sector, notable cases included, in addition to the fight-for-survival mergerof DDI, KDD and IDO, efforts by NTT DoCoMoand other mobile telecommunication providers to
expand overseas. Here there were numerous instances of capital participation in 1) the mobile
phone provider division of AT&T Wireless, and
2) KPN Mobile, a European mobile telecommunications network operator and provider. (Thecapital relationship between the two firms has
since been dissolved. 15 ) Included as well aretransactions in which foreign financial institutions bought up firms which had gone bankrupt,
or were in danger of bankruptcy, in the hope ofgaining a foothold in the Japanese market (Prudential acquired Kyoei Life Insurance; American
International Group took over Chiyoda MutualLife). This suggests that by undertaking M&A at
12

Firms are listed in order of the factors that characterizeeach year, with consideration also given to the monetary
value involved.
13
The firm is now named Mizuho Financial Strategy. The
shares which it held in Mizuho Bank and Mizuho Corporate
Bank were acquired by the Mizuho Financial Group.
14
As of the time of this paper, the firm has merged with
UFJ Holdings to form the Mitsubishi UFJ Financial Group.
15
According to NTT’s financial report for the period ending March 31, 2005 (for AT&T) and KPN’s financial reportfor the period ending March 31, 2006 (for KPN).
Development Bank of Japan Research Report/ No. 59 7

an early stage, foreign firms played a role inmaking the allocation of assets more efficient in
the Japanese economy that was slack in that respect. Clearly, there were a good number oflarge-scale M&A projects in the financial services and telecommunications industries during
this period. Some firms in the midst of industrial

restructuring chose M&A for the efficiency andother synergistic effects it promised, while others
used it as a means of uncovering foreign business
opportunities. Foreign financial institutions,
meanwhile, were eager to acquire bankrupt firms
in order to expand their business in Japan.

Figure 2-9. Major M&A Transactions from 99 through 01(1) 99CY
Incentive

MarketIN-OUT

Growthstrategy

Acquiring firm

Acquired firm

Form

Time

Value(in 100
billion yen)

Food & Beverages

Food & Beverages

Acquisition

1999/3/10

9424

KyoceraElectric Machiney

Qualcomm

Electric Machiney

Business transfer

1999/12/24

1020

AXA

Life and non-life
insurance

Nippon Dantai
Life insuranceLife andinsurance

Acquisition

1999/11/29

2000

GeneralMotors (GM)Transportation
machinery

Fuji Heavy
Industries Ltd

Transportation
machinery

Capital participation

1999/12/8

1400

Sanwa BankBank

Toyo Trust andBanking

Bank

Investment
expansion

1999/2/11

1000

Sumitomo
Bank

Bank

Sakura BankBank

Merger1999/10/15−

JT acquired RJ Reynolds., a non-US tobacco subsidiaryof RJR Nabisco, to expand JT’s foreign business (JT isworld’s 3rd largest tobacco company).
Kyocera aimed to strengthen its mobile phone businessin North America.
First joint holding company of insurance to beestablished in Japan. Axa acquired almost all shares in
Nippon Dantai, making it effectively an Axa subsidiary.
With GM as largest shareholder, the two firms
complemented their production and sales resources one
another.
Sanwa became top shareholder by accepting athird-party allotment of new shares.
Merger carried out in April 2001 to form Mitsui
Sumitomo Bank.

Bank

Merger1999/8/20−

Firms established joint holding company (Mizuho
Holdings founded in September 2000).

Telecom.&Broadcasting

Merger99/12−

New firm, KDDI, emerges as telecommunications giant
second only to NTT.

Capital participation

99/4

2200

Merger99/2−-

non-life

OUT-IN

IN-IN

Industrial Bankof Japan, Fuji
BankKDD,Nippon
Idou Tsushin(IDO)

Dai-IchiKangyo Bank

Bank

IN-IN

DDI

Telecom.&broadcasting

OUT-IN

BritishTelecom (BT),
AT&T

Telecom.&Broadcasting

Japan Telecom

Telecom.&Broadcasting

IN-IN

Takasaki Paper
Mfg.

Pulp & Paper

Sanko Paper Mfg

Pulp & Paper

Relief andgrowthstrategy

OUT-INGE Capital(GEC)

Other financial
serviceJapan
Lease,Japan
Lease Auto

ServiceBusiness transfer

99/1

8700

Rehabilitation

OUT-IN

Renault

Transportation
machinery

NissanMotor,Nissan
Diesel Motor

Transportation
machinery

Capital participation

99/3

6430

Rehabilitaion
throughinvestment
firm or othersourceOUT-IN

Ripplewood
Holdings

Other financial
serviceLong-Term
Credit Bank of
Japan

Bank

Acquisition

99/9

1210

Industrial
restructuring

DetailRJ Reynolds
International

JT (Japan
Tobacco Inc.)

Note:

Comprehensive business alliance; part of the two
acquiring firms’ advance strategy into Japan.
Merger of Takasaki Paper (Mitsui & Co., Ltd. group)and Sanko Paper (Itochu Corporation group). New
company was effectively joined the Oji Paper group.
GE took over leasing business from Japan Leasing(Long Term Credit Bank of Japan group), alsoacquiring all shares of Japan Lease Auto. Move
represents GE’s advance strategy into the Japaneseleasing industry.
Renault entered into a remedial capital participation
relationship with Nissan Motors and Nissan Diesel,
both in the process of reconstruction.
Acquisition of LTCB (temporarily nationalized) by
Ripplewood, a US investment firm. Firm aims at
relisting in future.

Information on time and value is as reported in Recof MARR. Dates show time of public disclosure, not time whendeal was finalized.
Source: Recof MARR.

8

Development Bank of Japan Research Report/ No. 59

Figure 2-9. Major M&A Transactions from 99 through 01 (continued)(2) 00CY
Incentive

MarketIN-OUT

Growthstrategy
IN-IN

OUT-INNTT Communications

Telecom.&Broadcasting

00/11

11000

Telecom.&Broadcasting

Acquisition

00/8

6000

NTT DoCoMo

Telecom.&Broadcasting

KPN Mobile

Telecom.&Broadcasting

Capital participation

00/5

4073

NTT DoCoMo

Telecom.&Broadcasting

Hutchison 3G
UK Holdings

Telecom.&Broadcasting

Capital participation

00/7

1944

Part of overseas deployment (UK).

Mitsubishi
Corp.

General trading
company

LawsonSupermarkets&convenience
storesCapital participation

00/1

1700

Mitsubishi Acquired share of Lawson from its parent
company (Daiei). Strategy aims at revitalizing
e-commerce using Mitsubishi’s resources in distribution, marketing and other areas.

Telecom.&Broadcasting

Hikari Tsushin

Telecom.&Broadcasting

Capital participation

00/2

1100

Move designed to strengthen alliance through development of internet business in Asia.

Pacific
Century
CyberWorks
Hikari Tsushin:
President
ShigetaTokaiBank,Asahi
Bank

Capital participation

00/2

1100

Mobile phone sales and other business, designed tostrengthen alliance through development of Asianinternet business.

Bank

Merger00/3−

UFJ Bank was established by this merger in January
2001; Asahi Bank later withdrew.

Mitsubishi Trustand Banking,Nippon Trust
Bank

Bank

Merger

00/4−

Joint holding company formed. Integral parent
company, “Mitsubishi Tokyo Financial Group,"established in April 2001 through share transfer.

Telecom.&Broadcasting

Japan Telecom

Telecom.&Broadcasting

Capital participation

00/12

2492

Life and non-life
insurance

Kyoei Life
Insurance

Life and non-life
insurance

Acquisition

00/5

4140

Transportation
machinery

Mitsubishi
MotorsTransportation
machinery

Capital participation

00/3

2024

Bank

Daiei

Supermarkets&convenience
storesInvestment
expansion

00/11

1200

Banks increase ratio of investment in Daiei, providing
financial assistance for its reconstruction.

Other financial
service

Life

Other financial
serviceAcquisition

00/10

1020

Aiful and Sumitomo acquire Life, a leading consumer
credit company, making it a subsidiary.

Other sales andwholesale

Nippon Credit
Bank

Bank

Acquisition

00/2

1000

Buyers acquire Nippon Credit Bank (temporarily
nationalized), rename it “Aozora Bank.”

Bank ofTokyo-Mitsubishi

Bank

OUT-IN

Vodafone

OUT-IN

Prudential

IN-IN
Finance sector(rehabilitation)

DetailCapital participation in mobile phone division as partof overseas deployment. Foothold in US mobile phonemarket.
TOB. Entered US market with acquisition of Berio, aninternet service provider.
Part of overseas deployment(Netherlands). Partner isstock company retaining mobile phone companies
primarily in Europe.

Berio

Sanwa BankOUT-IN

Value(in 100
billion yen)

AT&T wirelessBank

Financesector(forrehabilitaion ofborrower firm)

Time

Capital participation

Telecom.&Broadcasting

IN-IN

Form

Telecom.&Broadcasting

Pacific Century
CyberWorks

Industrial
restructuring

Rehabilitation

NTT DoCoMo

Telecom.&Broadcasting

Acquired firm

Telecom.&Broadcasting

IN-OUT

Relief andgrowthstrategy

Acquiring firm

DaimlerChrysler
TokaiBank,Sanwa
Bank,SumitomoBank,Fuji
Bank
Aiful,Sumitomo
Trust &
Banking
Softbank,
Oryx, Tokio
Marine andFire Insurance

Vodafone follows BT and other firms in investing in
Nippon Telecom. Management shifts from JR toforeign capital.
Prudential acquires Kyoei, which has applied for the
Law Concerning Exceptions to Reorganization andBankruptcy Procedure for Financial Institutions(the"Special Corporate Reorganization Law")
DaimlerChrysler accepts third-party allotment of newshares, effectively assuming management authority.

Source: Recof MARR.

Figure 2-9. Major M&A Transactions from 99 through 01 (continued)(3) 01CY
Incentive
Industrial
restructuring

MarketOUT-IN
IN-IN

IN-IN

Growthstrategy

IN-OUT

OUT-IN

Relief andgrowthstrategy

OUT-IN

Financesector(securing
funds forrehabilitationof borrower)

OUT-IN

Acquiring firm
Vodafonegroup
Kawasaki SteelCorporation
ORIX Trustand Banking
Corporation(oryx)
NomuraSecurities: UK
subsidiary
Furukawa
Electric,CommScope
NomuraSecurities: UK
subsidiary
F.Hoffmann-La
Roche
AmericanInternational
Group (AIG)
Manulife
Century Life
Insurance

BNP Paribas

Acquired firm

Telecom.&broadcasting

Japan Telecom,J-Phone

Telecom.&broadcasting

Steel

NKK

Steel

Bank

Asahi MutualLife Insurance

Securities

Non-Ferrous Metals

Form

Time

Value(in 100
billion yen)

DetailInvestment
expansion

01/5

6523

Merger01/4-

Life and non-life
insurance

Business transfer

01/9

1400

Asahi scaled down its housing loan division toconcentrate resources on core business (“select andconcentrate”).

Le Meridien

Real estate&hotel

Acquisition

01/5

3250

Buyer acquired luxury hotel chain Le Meridien, merges
it with a British hotel chain, Principal, acquired
previously.

Lucent Technologies

Electric Machiney

Business transfer

01/7

2800

Buyers desired to strengthen their optical Textiles
business.

Securities

Bass

Food & Beverages

Business transfer

01/2

1060

Buyer emerged as the UK’s largest pub owner.
Commission revenue was principal objective.

Pharmaceuticals

Chugai PharmaceuticalPharmaceuticals

Acquisition

01/12

1550

Expansion of scale.

Life and non-life
insurance

Chiyoda MutualLife

Life and non-life
insurance

Business transfer

01/2

3200

Derived Chiyoda’s business following its bankruptcy.

Life and non-life
insurance

Daihyaku MutualLife

Life and non-life
insurance

Business transfer

01/1

1470

Derived Daihyaku’s insurance contracts following its
bankruptcy.

Bank

UFJ Holdings:US
subsidiary(United
California bank)Bank

Acquisition

01/12

3100

Sale undertaken in order to secure funds for dispositionof bad debts of UFJ Group.

Increase in investment ratio.
Established holding company “JFE Holdings” throughshare-for-share exchange.

Source: Recof MARR.

Development Bank of Japan Research Report/ No. 59 9

Figure 2-10 gives some representativetransactions during 2002. It was in this year thatthe government put the financial revitalization
program in motion to clean up bad debts. Banks
seeking to restore their borrowers often engaged
in debt equity swaps (DES), in which they increased their investment in client firms. Some
examples were UFJ Bank (now Bank of Tokyo-Mitsubishi UFJ), which joined other financial institutions in assisting Daiei, and Mizuho
Corporate Bank, which extended support to Orient Corporation and Isuzu Motors. Among investment firms, Ripplewood Holdings’ acquisition of the Long-Term Credit Bank of Japan(temporarily nationalized) was one of the biggest
deals of 1999. In 2002 as well, one of the mostimportant M&A transactions involved an investment firm when Lone Star, a US fund, purchased First Credit, a non-bank belonging to theformer LTCB group. In an integrated attempt at
corporate reconstruction, funds provide theirtarget firms not only with money, but also withmanagement resources. They differ most conspicuously from main banks or holding companies in that they sell their share and crystallize
their profits after a predetermined investment
period.

Figure 2-10. Major M&A Transactions from 02 throuth 03(1) 02CY
Incentive

Financesector(forrehabilitaion ofborrower firm)

Financesector(securing
funds forrehabilitationof borrower)
Rehabilitaion
throughinvestment
firm or othersourceRehabilitation

GrowthstrategyMarketAcquiring firm
UFJ Bank,
Sumitomo
Mitsui
Banking
Corporation,
MizuhoCorporate
Bank
MizuhoCorporateBank(Mizuho
Holdings)
Daiwa Bank,
Chuo Mitsui
Trust andBanking,Mizuho
Corporate
Bank
MizuhoCorporateBank(Mizuho
Financial
Group) ,others

Acquired firm

Value(in 100
billion yen)

DetailInvestment
expansion

02/7

2300

In process of reconstruction. Investment expansion bymeans of DES (dead equity swap).

Other
service

Investment
expansion

02/5

2000

Acquired firm is non-bank in process of reconstruction.
Investment expansion by means of DES (dead equityswap).

Construction

Investment
expansion

02/8

1500

Investment expansion by means of DES (dead equityswap).

Isuzu Moters

Transportation
machinery

Investment
expansion

02/10

1000

Investment expansion by means of DES (dead equityswap). Aims at reconstruction aided by board members
seconded from Mizuho and GM.

UFJ Bank(UFJHoldings :split-off
company)Bank

Capital participation

02/12

1000

Buyer increase capital through a third-party allotmentof new shares to UFJ Strategic Partners, a split-off
attempting to dispose of UFJ Bank’s bad debt. Merrill
Lynch takes active role in rehabilitated business.

NisshoIwai,Nichimen(Joint holding firm)

General trading
company

Capital participation

02/12

2000

First Credit

Other financial
serviceAcquisition

02/11

1000

Transportation
machinery

Mitsubishi
Motors(Mitsubishi
Fuso Truck andBus:split-off
company)

Transportation
machinery

Capital participation

02/9

1200

Software,Information

SquareSoftware,Information

Merger

02/11

1309

HitachiElectric Machiney

IBMElectric Machiney

Business transfer

02/4

2500

Wal-Mart
StoresSupermarkets&convenience
storesSeiyu

Supermarkets&convenience
storesAcquisition

02/3

2580

Daiei

Bank

Orienttion

Bank

Haseko Corporation

Bank

Merrill Lynch

Securities

LehmanBrothers,UFJ
Bank, ,others

Other
servicefinancial

Lone Star

Other
servicefinancial

OUT-IN

DaimlerChrysler,
Mitsubishi
Heavy
Industries,
Mitsubishi
Corporation,Bank ofTokyoMitsubishi,
others

IN-IN

Enix

IN-OUT
OUT-INOUT-IN

Time

Supermarkets&convenience
stores

Bank

IN-IN

Form

Corpora-financial

OUT-IN

Note:

Capital participation in Nichimen and Nissho
Iwai-Nichimen Holdings(currently Sojitz). Board
members were seconded to aid in rehabilitation.
Acquiring firm is US investment fund. Acquired firm
is a bankrupt non-bank affiliated with former
Long-Term Credit Bank of Japan. Board members wereseconded with aim of going public.

Mitsubishi Motors, in process of reconstruction, split
off bus and truck division (Jan. 2003), sells off a
portion of its stock, uses income to secure funding forautomotive division.

First merger in Japan between two leaders in the fieldof game software. Expansion of scale is main motive.
Hitachi purchases HDD business in move to expand
scale.
Market entry; expansion of scale. Subsidiary formed in
Dec. 2005.

Information on time and value is as reported in Recof MARR. Dates show time of public disclosure, not time whendeal was finalized.
Source: Recof MARR.

10Development Bank of Japan Research Report/ No. 59

Figure 2-10. Major M&A Transactions from 02 throuth 03 (continued)(2) 03CY
Incentive

Financesector(forrehabilitaion
by public
funds)

Financesector(forrehabilitaion ofborrower firm)

Financesector(securing
funds forrehabilitationof borrower)
Rehabilitaion
throughinvestment
firm or othersourceBuyout byinvestment
firm or otherentityMarket

IN-IN

IN-IN

OUT-IN

Acquiring firm
DepositInsurance
Corporation ofJapan
DepositInsurance
Corporation of
Japan
Japan National
Oil Corporation
MizuhoCorporateBank(Mizuho
Holdings)
MizuhoCorporateBank(Mizuho
Holdings) etc

Form

Reorganization
within group

Value(in 100
billion yen)

DetailServiceResona HoldingsBank

Acquisition

03/6

19600

Service

Ashikaga BankBank

Acquisition

03/11

-

Temporary nationalization, calling into question the
responsibility of both shareholders and management.
Input of about 1 trillion yen in public funds.

Oil & coal

Japan
Oil
Development

Oil & coal

Acquisition

03/7

1194

DES (dead equity swap) was used in acquisition offirm, which had applied for rehabilitation under the
Civil Rehabilitation Law.

Bank

Orienttion

Corpora-Other
service

Investment
expansion

03/3

1500

Second investment expansion for firm, then underreconstruction.

Bank

NissanMotor

DieselTransportation
machinery

Investment
expansion

03/9

1060

Investment expansion through DES (dead equityswap).

UFJ Bank(UFJHoldings)

Bank

Nippon Shinpan

Other
serviceAcquisition

03/11

1000

UFJ Bank(UFJHoldings)etc

Bank

Misawa Homes
Holdings

Construction

Capital participation

03/10

1000

Goldman
Sachs

Securities

Sumitomo Mitsui
Financial GroupBank

Capital participation

03/1

1503

Capital participation through a third-party allotment of
new shares.

Cerberus

Other
servicefinancial

Aozora BankBank

Acquisition

03/4

1000

TOB. Acquisition of stock from Softbank, the top
shareholder, with intention to relist.

Colony capital

Other
servicefinancial

Fukuoka
Daiei
Real Estate

Real estate&hotel

Acquisition

03/12

940

Acquisition by US investment fund (March 2004).
Selection and concentration by Daiei.

Ripplewood
Holdings

Other
servicefinancialJapan
Telecom(Japan
Telecom Holdings)

Telecom.&broadcasting

Acquisition

03/5

2600

Kao

ChemicalKaneboChemicalCapital participation

03/10

2500

Minolta

Precision Machinery

financialfinancial

IN-IN
GrowthstrategyTime

A rehabilitation project using public funds. First
application of special assistance under the Deposit
Insurance Law.

OUT-INOUT-IN

Acquired firm

KonicaChemical

IN-OUT

Mitsui & Co

Generalcompany

IN-IN

Matsushita
Electric
Industrial

Electric Machiney

trading

ValeparMiningMatsushita
Electric Works

Electric Machiney

Merger03/1

1860

Capital participation

03/4

1000

Acquisition

03/12

1462

Acquisition of Nippon Shinpan, then under reconstruction. UFJ made move in order to strengthen its
personal business division. UFJ card and Nippon
Shinpan merged in Oct. 2005.
Misawa Homes Holdings was in the process ofreconstruction.

US investment firm. Acquisition of Japan Telecom,
operator of landline phone and data communication
service under Vodafone. Vodaphone retains mobile
telecommunication provider(selection and concentration).
Integration of cosmetics business. Kabebo withdrew
from the deal at one point because the Industrial
Revitalization Corporation of Japan had attempted toacquire.
Management integration by means of a holding
company.
Capital participation in Valepar, a shareholder ofCompanhia Vale do Rio Doce, the world leading
producer of iron ore. Secured rights to iron ore.
TOB. Acquisition of group firm, which was made into
a consolidated subsidiary.

Source: Recof MARR.

Similar phenomena occurred in 2003. In addition to deals involving banks and investment firms,
business rehabilitation efforts were characterized
by a clear and growing government presence. One
example was a public fund injection 16 into Ashikaga Bank by the Deposit Insurance Corporation ofJapan. Transactions involving investment firms
also showed a big jump, growing on a quantity ba16
This case is treated differently depending on whether
shareholder responsibility is called into question. Ashikaga
Bank was subject to Provision 3, Article 102 of the Deposit
Insurance Law. The government chose “temporary nationalization,” which calls into question shareholder responsibility as well as managerial accountability. This is a similar
measure to the “temporary nationalization” provision, basedon the Financial Revitalization Law, which was applied to
the Long Term Credit Bank of Japan and the Nippon Credit
Bank of Japan. Resona Holdings, on the other hand, wassubject to Provision No. 1, Article 102 of the Deposit Insurance Law. Under the “government recapitalization” provision, shareholder responsibility was not called into question, although management did resign. (For details, see
Kataoka (2004).)

sis from 1.5 percent of all deals in 2002 to 5.5 percent in 2003.16 Among the most important deals
involving investment firms were Cerberus’ acquisition of Aozora Bank, Colony Capital’s acquisitionof Fukuoka Daiei Real Estate, and Ripplewood
Holdings’ acquisition of Japan Telecom. The caseof Colony Capital had broader implications than
the firm’s own revitalization: it also represented an
attempt by Daiei to concentrate its resources on its
core businesses by selling off Fukuoka Daiei Real
Estate, which had been responsible for the Fukuoka
Dome and other Daiei projects in Fukuoka. The
aim of the Ripplewood Holdings deal, meanwhile,
was to assist Vodafone’s efforts to concentrate onits mobile telecommunication provider business by
selling off Japan Telecom, which had been in
charge of landline phone and data communication
services under the Vodafone. In addition to thebusiness rehabilitation aspect, investment firms
16

See Figure 2-6.

Development Bank of Japan Research Report/ No. 59 11

seem to have played a key role (buy-out) in helping
mature firms to “select and concentrate” by buying
up their non-core divisions, as in the Cerberus deal.
On a value basis, more M&A transactions
were reported in 2004 than in any previous year.
Many large-scale deals were included in the top
rankings (Figure 2-11). Rehabilitation schemes,
funded largely with public money 17 or by financial institutions, continued to be pursued, as did“select and concentrate” projects 18 funded byinvestment firms. There was also a notable reorganization in the pharmaceutical industry in anticipation of the amendment of the Commercial
Code (the merger of Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical), and a restructuring of the financial services industry as well.
Firms took defensive measures to protect themselves from hostile takeovers. The trend in industrial reorganization M&As showed that firms
were focusing on corporate growth over the midto long-term; it also indicated that the objectiveof M&A activity began to switch from rehabilitation to growth. Deals involving Japan had been
relatively cordial, but some overtures made in
2004 were distinctly adversarial in tone. These
included the tug-of-war 19 that Mitsubishi Tokyo
Financial Group (MTFG) and UFJ Group enteredinto with Sumitomo Trust over UFJ Trust Bankin connection with the integration of MTFG andUFJ; the approach by Sumitomo Mitsui Financial
Group to UFJ concerning integration, whichcontained a hostile proposal; and MTFG’s capital
participation in UFJ Bank. All in all, it was ayear that saw some definite changes in stance on
the buyer side.
In 2005 the major trend swung toward proactive M&A transactions between Japanesebusiness corporations, grounded in growthstrategies for the mid- to long-term (Figure 2-12).
Inpex and Teikoku Oil set up a joint holding
17
Assistance by the Industrial Revitalization Corporationof Japan to Kanebo, Daiei and others.
18
The Carlyle Group and a consortium formed by Kyocera
and KDDI established a company to take over the PHS
division of DDI Pocket. KDDI focused its resources on au,
its mobile phone division.
19
UFJ Trust Bank initially announced it would integratewith Sumitomo Trust, but, with the UFJ Group merging
with MTFG, it withdrew from the deal. It subsequently
formed an alliance with Mitsubishi Trust & Banking, and so
became part of the Mitsubishi UFJ Financial Group (October 2005).

12

Development Bank of Japan Research Report/ No. 59

company to integrate their management; Kaomoved to acquire Kanebo. A look at the ranking
reveals that most M&A deals were between
Japanese firms and were undertaken less to diversify than to strengthen existing businesses. 20
Transactions involving investment firms included, as they did in 2004, 21 large-scale exit
deals such as the sale of First Credit, which Lone
Star had acquired in 2002, to Sumitomo Trust.
This deal was representative of a business modelin which the investment firm dispatches board
members to the target company, raises its corporate value, retains the investment for a set periodof time (in this case, three years) and then “exits”
by selling the company to a firm that needs it. In
the face of hostile moves, such as Rakuten’scapital participation into TBS, many firms turned
again to defensive strategies. Several such moves,in fact, ranked among the most important dealsof the year. Management buyouts by firms suchas World and Pokka were extreme examples ofdefensive strategy. Ito-Yokado and Seven Eleven
Japan established a joint holding company toresolve an awkward ownership structure – theaggregate market value of Seven Eleven exceeded that of Ito-Yokado, its then-parent company – and to block any takeover attempts fromunwelcome suitors.
The trends observed in 2005 continued
throughout the first half of 2006. The period’s
top deals were mostly those aiming at synergy
through a strengthening of existing businesses
and defensive moves in anticipation of possible
takeover bids (Figure 2-13). Among M&A deals
aiming at the synergy effects, the top ones include not only in-in transactions, such as Seven& I’s purchase of York-Benimaru in an effort tobuild a stronger supermarket division, butlarge-scale in-out deals, such as Toshiba’s acquisition of Westinghouse and the purchase by
Nippon Sheet Glass of Pilkington.
20

Important M&A deals between firms in different industries included those between JA Bank and Mitsubishi UFJ
Financial Group, Bandai and Namco, and Seven & I Holdings and Millennium Retailing. Now, however, firms weremore likely to seek partners in relatively similar fields ofbusiness, with the aim of gaining customers (for example),rather than to venture into an area in which they have little
knowledge or experience.
21
In 2004, Ripplewood Holdings sold its shares in Japan
Telecom, which it had acquired in 2003, to Softbank.

To sum up, from the latter half of the 1990s,
M&A in the telecommunications and financial
services were largely driven by industry consolidation aimed at the exploitation of synergy
effects. After that period, there was an increase
in rehabilitation projects by financial institutions,public-sector organizations and other entities
seeking to increase corporate value. Investment
firms played a big part in rehabilitated businesses,
not only in the rehabilitation but also, in the“buyout type,” in encouraging mature firms to“select and concentrate.” There also was an increase in the number of proactive M&A deals
by business firms aiming at synergy, even as
their own financial conditions were improving.
Whereas many deals took place between firms
in the same industry, this was not always thecase. But even where industries differed, thebusinesses in which the firms operated were usually similar or related (Seven & I Holdings andMillennium Retailing, for example). Anotherbusiness model that became well-establishedduring this period was the “exit” by an investment firm from a target company. After dispatching board members to the target firm andhelping it regain its feet, the investment firm
would sell out once the firm had achieved an increase in corporate value. And, whereas mostM&A deals up to this point had been comparatively amicable, managements now showed they
were prepared to take hostile action when theyjudged it necessary to enhance corporate value.
In this environment, firms conducted management buyouts, increased cross-shareholding, andother defensive strategies to protect their integrity.

Development Bank of Japan Research Report/ No. 59 13

Figure 2-11. Major M&A Transactions in 04
Incentive

Financesector(forrehabilitaion
by public
funds)

Market

IN-IN

IN-IN

Finance sector(rehabilitation)

Financesector(forrehabilitaion ofborrower firm)

Buyout byinvestment
firm or otherentityAcquiring firmIndustrial
Revitalization
Corporation ofJapan

Acquired firm

services

Kanebo boutique(split-off
cosmetics
business)

ChemicalsIndustrial
Revitalization
Corporation ofJapan, etc

services

Daiei

Phoenix
capital,Mitsubishi
Heavy
Industries,
Mitsubishi
Corporation,
Bank ofTokyo-Mitsubishi, JP Morgan
securities,
China Motor,
etc

Other
services

financial

Form

Time

Value(in 100
billion yen)

DetailAcquisition

04/2

5000

Rehabilitation Project using public funds. Withdrawal
from deal to transfer cosmetics division to Kao.

Supermarkets&convenience
storesCapital participation

04/12

1100

Rehabilitation Project(with a focus on food supermarket ) using public funds. IRCJ, with a newsponsor, accepted a third-party allotment of newshares. Main bank UFJ forgave debt. Board Membersof Daiei resign.

Mitsubishi
MotorsTransportation
machinery

Capital participation

04/5

4500

Phoenix Capital, a Japanese corporate rehabilitation
fund. Okazaki factory was closed as part of alarge-scale restructuring.

Other financial
services

Business transfer

04/11

2050

Part of the restructuring of Mitsubishi Motors' North
American operations. Sold a portion of its assets to
Merrill Lynch, establishing a new joint venture.

Investment
expansion

04/7

2500

Financial assistance to Sojitz, then in the process ofreconstruction

Business transfer

04/5

2200

A bridge company funded by a consortium including
Carlyle, Kyocera and KDDI acquired the PHS
business of DDI Pocket. DDI Pocket went into
liquidation. KDDI concentrated its resources on au.
(Demand for PHS is expected from China.)

Acquisition

04/7

1594

Nikko Principal Investments, a firm within the Nikko
Cordial Group, made the purchase through NPI
Holdings, its wholly-owned subsidiary.

OUT-IN

Merrill Lynch

Securities

Mitsubishi
Motors Credit ofAmericaInc.(MMCA),
Mitsubishi
Motors America
Inc.
(Mitsubishi
Motors)IN-IN

UFJ Bank(UFJHoldings),
Mitsubishi
Tokyo
Financial
Group, UBS

banking

Sojitz Holdings

Generalcompany

OUT-IN

Carlyle group

Other
services

financial

DDI Pocket

Telecom&broadcasting

IN-IN

NPI
Holdings(Nikko
Principal
Investments)

Other
services

financial

Bell Systems 24

SoftwareInformation

Yamanouchi
PharmaceuticalPharmaceuticals

Fujisawa
PharmaceuticalPharmaceuticals

Merger04/2

8401

Merger between Yamanouchi and Fujisawa, Japan's
third and fifth largest pharmaceutical makers.
Domestic and global reconstruction for survival.
Astellas Pharma established in April 2005.

Dainippon
PharmaceuticalPharmaceuticals

Pharmaceuticals

Merger

04/11

2269

An attempt to improve efficiency and expand in scale(established in October 2005).

Softbank

Other retailing andwholesaling

Acquisition

04/5

3400

Expansion of scale, resulting in Japan's third-largest
general communications company after NTT and
KDDI. Fund's exit business.

IN-IN

IN-OUT
Industrial
restructuring

IN-IN

Mitsubishi
Tokyo
FinancialGroup
Mitsubishi
Tokyo
Financial
Group

IN-IN

IN-OUT

Other
servicesandfinancialbanking

UFJ Holdings

banking

Merger

04/7-

Integration produced a coprehensive financial groupwith assets of some 200 trillion yen(October 2005).
Mitsubishi UFJ Bank(January 2006) and Mitsubishi
UFJ Trust Bank were under it.

banking

UFJ Bank (UFJ
Holdings)

banking

Capital participation

04/9

7000

Japan's first defensive strategy taken to ward off a
possible hostile takeover. Acceptance of preferredshare with convertion right.

banking

UFJ Trust Bank
(UFJ Holdings)

banking

Business transfer

04/5

3000

Move undertaken to expand scale. Acquired Firm
withdrew from the agreement, however, merged with
Mitsubishi Trust and Banking to form a core unit of
the Mitusbishi UFJ Financial Group (Mitsubishi UFJ
Trust and Banking Corporation;October2005).

banking

Promise

Other
services

financial

Capital participation

04/6

2000

Aiming to secure profit in the personal banking field,
Establishment of capital and business alliance. As top
shareholder, seconded board members to Promise.

banking

Acom

Other
services

financial

Investment
expansion

04/3

1379

Full-scale entry into consumer finance business.

Shinsei Bank

banking

Aplus

Other
services

financial

Acquisition

04/9

1000

Acquisition of Aplus, a subordinate of UFJ. Strengthened core, non-bank business.

Sony Corporation America(SonyUSaffiliate),
Commcast, etc

Electric Machiney

Metro Goldwyn
Mayer (MGM)Amusement

Acquisition

04/9

5420

A consortium set up with partner firms acquired MGM
to strengthen film division (April 2005).

Sumitomo
Trust Bank

Growthstrategy

Sumitomo
Pharmaceuticals(
Sumitomo
Chemicals
subsidiary)
JapanTelecom(Ripplewood
Holdings
investment)

trading

Sumitomo
MitsuiBank(SumitomoMitsui
Financial
Group)
Mitsubishi
Tokyo
Financial
Group

Note:

Information on time and value is as reported in Recof MARR. Dates show time of public disclosure, not time whendeal was finalized.
Source: Recof MARR.

14

Development Bank of Japan Research Report/ No. 59

Figure 2-12. Major M&A Transactions in 05
Incentive

MarketAcquiring firm

Seven Eleven
Japan, Denny's
JapanSupermarkets &convenience stores

TextilesWorld

Chemical

Inpex

Mitsubishi
ChemicalRehabilitation

Rehabilitaion
throughinvestment
firm or othersourceOthers

DetailEstablished Seven & i Holdings, a joint holding
company. Took steps to resolve issue of capital ties
and ward off possible hostile takeover.

TextilesAcquisition(TOB,MBO)

07/5

2081

Management buy-out of a fine company.

Kanebo cosmetics

ChemicalAcquisition

07/5

4400

Kao acquired Kanebo brand and sales network (Jan.
2006). Hopes to close gap with Shiseido,Japan's
leading cosmetics maker.

MiningTeikoku Oil

MiningMerger07/5

3606

ChemicalMitsubishi
PharmaPharmaceuticals

Merger

05/4

2003

JA Bank

Other financial
service

Mitsubishi UFJ
financial group,
UFJ Nicos(formerly Nippon
Shinpan)Bank

Capital participation

07/5

2000

BandaiOther manufacturing

Namco

Amusement

Merger05/5

1736

Koyo Seiko

MachineToyota machine
Works

MachineMerger

05/2

1479

KDDI

Telecom. &broadcastingPoweredcom

Telecom. &broadcasting

Merger

05/10

1273

RakutenSoftware, Information

TBS

Telecom. &broadcasting

Capital participation

05/10

1110

Sumitomo
Corporation
US

General trading
company

TBC Corporation

Other retail

Merger05/9

1300

Strengthening of US tire sales business extending
from wholesale to retail markets.

Sumitomo
Trust BankBankFirst Credit (LoneStar investment)

Other financial
serviceAcquisition

05/10

1300

Fund's exit business (Nov.2005). Acquisition of allshares, reorganization as subsidiary. First Credit
specialize in loans secured by real estate.

IN-IN

SankyoPharmaceuticals

Daiichi PharmaceuticalPharmaceuticals

Merger05/2

7968

Business integration by joint holding company.

Life and non-life
insurance

Mitsubishi Tokyo
Financial GroupBank

Investment
expansion

05/1

2500

MTFG used income invest in Bank of Tokyo-Mitsubishi; move taken to strengthen financial
condition ahead of merger with UFJ Group.

IN-IN

Tokyo Marine& Nichido Fire
Insurance,
Meiji Yasuda
Life Insurance,
Nissei Life
Insurance
Sumitomo Life
Insurance,
Nissei,
Mitsui Life
insurance

Life and non-life
insurance

Sumitomo Mitsui
Financial GroupBank

Investment
expansion

05/3

2100

Move aimed at averting a decrease in Sumitomo
Mitsui Bank's equity ratio due to increased disposal of
Sumitomo Mitusi Financial Group's non-performing
loans.

Supermarkets&convenience
storesMillenium
Retailing(holding company for Sogo
and Seiyu
department
stores;investment
of NomuraPrincipal
Finance)

Department store

Acquisition

05/12

1311

Fund's exit business; left two majyor firms at top ofindustry(other is ieon Group).Produced a comprehensive reteiling conglomerate that included department
stores.

MachineMitsubishi
MotorsTransportation
machinery

Investment
expansion

05/1

2700

Expanded investment in reconstructing company by
three firms in Mitsubishi Group.

Other financial
service

Sanyo ElectricElectric Machiney

Capital participation

07/5

1250

Acceptance of preferred stock in resonstructing
company(Jan.2006). Board members were seconded.

Securities

Sanyo ElectricElectric Machiney

Capital participation

05/12

1250

Telecom. &broadcasting

Livedoor partners(Livedoor
sub-subsidiary)

Other financial
serviceAcquisition

05/4

1033

IN-IN

IN-OUT

Industrial
reorganization,defensive
strategy

Value(in 100
billion yen)
13523

GrowthstrategyGroup relation
strengthening

Time
07/5

IN-IN

Industrial
restructuring

Form
Merger

Ito-Yokado
Defensive
strategy

Acquired firm

Supermarkets&convenience
stores

IN-IN

IN-IN

IN-IN

OUT-IN

IN-IN

Hidezo Terai,
President ofWorld (Harbor
Holdings
Alpha), Chuo
Mitsui CapitalKao, Advantage Partners
LLP, MKS
Partners,
Unizon Capital

Seven & i
Holdings

Mitsubishi
Heavy
Industries,
Mitsubishi
Corporation,
Bank ofTokyo-Mitsubishi
Daiwa
Securities
SMBC
Principal
investments
Goldman
Sachs group

Fuji Television

Merge with Teikoku Sekiyu, Japan's third largest oilcompany. Established Inpex Holdings, a joint holding
company, by means of share transfer. Expansion ofscale as survival strategy.
Established joint holding company, Mitsubishi
Chemical Holdings, by means of share transfer (Oct.
2005).
Each partner sought synergistic effects by the mutual
exploitation of JA Bank's customer base and MUFG's
strengths in technology and products. Also UFJ Nicos
sought to increase its membership.
Established joint holding company by means of sharetransfer. Reorganization of related business.
Keiretsu firm of Toyota Motors; aimed for synergy insteering division etc. New firm, Jtekt, established inJan. 2006.
Merger with Poweredcom (Japan's fourth largest
land-line telecommunications business), underTepco
Jan.2006).Consolidation of three communications
giants: NTT, Softbank, and KDDI.
Acquiring firms aimed at fusion of television, radio
and internet services.

Acceptance of preferred stock in resonstructing
company (Jan.2006). Board members were seconded.
The compromise settlement after hostile takeover bid
for Nippon Broadcasting System. By acquiring
Livedoor Partners, a Livedoor subsidiary holding
Nippon Broadcasting system, Fuji made Nippon
Broadcasting system its own subsidiary.

Note:

Information on time and value is as reported in Recof MARR. Dates show time of public disclosure, not time whendeal was finalized.
Source: Recof MARR.

Development Bank of Japan Research Report/ No. 59 15

Figure 2-13. Major M&A Transactions in 06
Incentive
Industrial
restructuring

MarketIN-OUTIN-OUT

Growthstrategy

IN-IN

Defensive
strategy

IN-IN

Acquiring firm
Softbank

Other sales
wholesale

Acquired firm
and

Form

Time

Value(in 100
billion yen)

DetailVodafone

Telecom. &broadcasting

Acquisition
(LBO)

06/3

19172

Vodafone became wholly owned subsidiary, effectively withdrew from Japanese market.

Electric power &gasAcquisition

07/6

6210

Secured stable income base by strengthening nuclear
fuel division.

ToshibaElectricity

BNFL USAGroup Inc.,
Westinghouse
UK Limited(BNFL:UK
nuclear fuelcompany)

DaikinIndustries

MachineOYL industries

MachineAcquisition
(TOB)

06/5

2320

Purchase of OYL, owner of US air conditioner giant
McQuay International. Chance to expand to global
level and diversify scope of business.

Marubeni
Offshore
Production

General trading
company

Pioneer natural
resources USA

MiningBusiness transfer

06/2

1360

Acquired oil production and development rights.

Nippon Sheet
Glass

Pottery industry

Pilkington

Ceramic

Acquisition

07/6

6160

Pilkington, as wholly owned subsidiary, had bases
worldwide, which could be used to supply products toa broad rande of users, including automakers.

Sumitomo
Mitsui
Financial
Group

Bank

SMBC friend
securities

Securities

Acquisition

06/3

3162

Strengthened ties among banks and securities firms
within the group. Move was a response to growing
demand for asset management.

Seven & i
Holdings

Supermarkets &convenience stores

York-Benimaru

Supermarkets &convenience stores

Acquisition

06/4

1489

Hankyuholdings

Transportation &warehouse

Hanshin Electric
Railway

Transportation &warehouse

Acquisition
(TOB)

06/5

3921

Current
Skylark board
members.
NomuraPrincipal
finance, etc

chain restaurant

Skylark

chain restaurant

Acquisition(MBO,TOB)

06/6

1812

Japan's largest MBO as of that time

Ieon

Supermarkets &convenience stores

Origin toshu

chain restaurant

Acquisition
(TOB)

07/6

526

A "white knight" move taken to counter Don Quijote's
hostile takeover bid for Origin toshu.

Note:York Benimaru made into wholly owned subsidiary,
positioned as core of acquiring firm's supermarket
business.
Responding to the Murakami Fund's move to acquire
stock in Hanshin Electric Railway,Hankyu proposed
the idea to Hanshin. Hanshin Hankyu Holdings wasformed as a result (Oct. 2006).

Information on time and value is as reported in Recof MARR. Dates show time of public disclosure, not time whendeal was finalized.
Source: Recof MARR.

16

Development Bank of Japan Research Report/ No. 59

III The Relationship Between
Capital Investment and M&A
The growing market for M&A would seem toindicate that mergers and acquisitions have become generally accepted as a useful businessstrategy. But capital investment is another important tool for firms pursuing growth. This being so, what is the relationship between M&A
and capital investment for a company choosing
an proactive stance as part of its mid- tolong-term growth strategy? In this section, we
explore the connections between firms’ M&A
choices and their decisions on investing in theirown facilities. Data are taken from the Development Bank of Japan’s Survey on Planned Capital
Spending for Fiscal Years 2005 and 2006, 22 carried out in November 2005, and its auxiliary
survey. 23
For the main survey, data were gathered on
the estimated value of capital investment for thecurrent fiscal year (FY 2005) and on the planned
value for the next fiscal year (FY 2006). The
survey was conducted on a company basis. The
auxiliary survey is a qualitative survey. Firms
were asked, for example, whether they had any
specific plans to buy assets or business divisions
from another firm, or were interested in such a
move in the future. 24 It is hard to find a survey
on firms’ capital investment plans and the presence or absence of M&A, but these statistics enable us to grasp the relationship between the two.
Since the data of capital investment is quantitative, however, it is necessary to convert them
22

These surveys have been carried out since FY 1956. For
the year concerned, surveys were sent to 4,249 private firms
capitalized at 1 billion yen or more, classified by investment-specific business. Responses were received from3,291 firms (response rate: 77.5 percent). For the purposesof the survey, “capital investment” is defined as the acquisition of tangible fixed assets of one’s own company; thepurchase of used assets is included in the definition. Thatthe survey was conducted according to business classifications indicates that both the principal business and sidebusinesses (in the case of diversified firms) were covered.
23
The official name is Survey of Attitudes on Capital Investment Behavior. Surveys were sent to 3,592 companies
capitalized at 1 billion yen or more. Responses were received from 1,732 firms (response rate: 48.2 percent). The
deadline for responses was November 10, 2005.
24
For the auxiliary survey, responses on capital investment
were based on the firms’ principal business.

into qualitative form. Results for FY 2005,
therefore, were compared with those for FY 2004,
and plans for FY 2006 compared with estimatedresults for FY 2005, to change such qualitative
data to “increase,” “decline,” and “level.” These
were cross-tabulated to understand the linkage
between M&A and capital investment.
The results of the survey are summarized in
Figures 3-1 and 3-2. Of firms saying they had“specific plans” for an M&A, those which expected an increase in their capital investments forthe current (2005) fiscal year were more or lessmatched by those which expected a decline. If,
however, we include firms which said they had“no specific plans, but (were) interested,” theshare expecting an increase in capital investment
becomes dominant. Different results were obtained when firms were asked about the relationship between M&A and their capital investment plans for the next (2006) fiscal year. Here,
more firms with “specific plans” for an M&A
expected an increase in capital investment thanfirms which expected a decline; however, those
expecting an increase were about equal in number to those forecasting to remain at the same“level” against FY 2005 in capital investment.
But when we expand the coverage to include“interested” firms, the share of those expecting“level” in capital investment becomes dominant
and those forecasting “level” and “increase”
capital investment account for a larger share thanthe “decline” groups.
Our results show that capital investment by
most firms with an interest in M&A as a strategic
option was “on the increase” for the 2005 fiscal
year and that it would “increase” or remain“level” during the next fiscal year. Only a small
percentage expected it to “decline.” Most firms
reported having a “positive” or “neutral” attitude
toward capital investment.
Focusing on firms which said they had“specific plans” for an M&A, however, we findno clear tendency toward either an “increase” ora “decline” in capital investment in FY 2005.
And while more firms expected capital investment to increase rather than decline in FY 2006,
the share of those answering “level” was also
large. First of all, it is not clear whether firms
answering that they had “specific plans” in 2005
enforced those plans during the 2005 fiscal year.

Development Bank of Japan Research Report/ No. 59 17

Next, we cross-tabulated those firms whichjudged there would be an increase (or decrease)in capital investment during fiscal years 2005
and 2006 with those which reported having“specific plans” for an M&A. We found that 44
percent of firms with specific plans estimatedthat capital investment would increase in both
years, a share some 35 points greater than that offirms expecting a decline for each of the years(Figure 3-3). Since this survey was done as aquestionnaire, the responses should be treatedwith some latitude. However, as mentioned ear-lier in regard to individual transactions, 2005 wasa period when most M&A deals were proactive
and based on mid- to long-term growth strategies.
This finding, which indicates that firms reportingplans for an M&A continued to be motivated tocarry out capital investment, suggests that forfirms pursuing a path of expansion, capital investment may have a complementary relationship with M&A entered into as part of a larger
growth strategy. 25

Figure 3-1. Relationship between Capital Investment (FY 2005) and M&A
Acquisition of assets or businesses from other firm
Have specific plans

No specific plans,
but interested

Have neither plansnor interest

Total

Increase

2.1

20.1

35.9

58.0

Decline

1.7

11.9

27.8

41.4

Level

0.1

0.1

0.3

0.5

3.9

32.1

64.0

100.0

(Unit: %)Planned capital investment
for FY 2005 (against resultsfor FY 2004)
Total

Source: The Development Bank of Japan, Survey on Planned Capital Spending for Fiscal Years 2005 and 2006.

Figure 3-2. Relationship between Capital Investment (FY 2006) and M&A
Acquisition of assets or businesses from other firm
(Unit: %)Have specific plans

Planned capital investment
for FY 2006 (against resultsfor FY 2005)

No specific plans,
but interested

Have neither plansnor interest

Total

Increase

1.8

8.3

16.4

26.4

Decline

0.8

7.4

18.0

26.2

Level

1.6

15.6

30.2

47.4

4.1

31.3

64.6

100.0

Total

Source: The Development Bank of Japan, Survey on Planned Capital Spending for Fiscal Years 2005 and 2006.

Figure 3-3. Capital Investment (FY 2005/FY 2006) and M&A(Unit: %)Acquisition of assets or businesses from other firm

FY 2005/FY 2006

Have specific plans

Increase + Increase44

Increase + Decline

18

Decline + Increase29

Decline + Decline

9

Total

100

Source: The Development Bank of Japan, Survey on Planned Capital Spending for Fiscal Years 2005 and 2006.

25
The academic research contains reports that in the UnitedStates, the IT-centered increase in capital investment thattook place from the late 1990s through 2000 was accompanied by similarly high activity in M&A, also primarily in IT(Yamashita and Ishizaki, 2003).

18

Development Bank of Japan Research Report/ No. 59

IV Analysis of the Effect of M&A
on Financial Performance
As we saw in Section II, in M&A deals in which
both sides are business corporations or financial
institutions, the firms on the buyer side tend tolook for synergy in the deal. 26 But does M&A
actually result in better performance? In this section we look at M&A transactions between business corporations. Focusing on mergers/acquisitions and business transfers, we analyze whether there has been any improvement in
the performance of buyer-side firms (including
the seller side in business transfers).
1.

Review of the Literature and Empirical
Results

There have been number of studies that haveexamined whether M&A improve the performance of firms. 27 Nagaoka (2005), in an empiricalanalysis to exmaine whether M&A between
listed business corporations made improvementsin performance, found that while the growth rateof sales did increase after a merger/acquisition, aequal merger worked instead to push sales
growth rates down. In case where the firm’sshare owned by board members increased, aequal merger tended to raise the growth rate ofsales. In equal mergers, therefore, the success ofan M&A hinges largely on management incentive. An analysis limited to management integration was made by Hosono, Sakai, and Tsuru(2006), who focused on credit unions (shinkinbanks). In their analysis, the financial improvement effect caused by integration is expressed as
the difference between the weighted average offinancial indicators for the acquiring firm and theacquired firm prior to integration and the financial indicator for the integrated company. The
larger the performance gap between the acquir26
In the auxiliary survey to the Survey on Planned Capital
Spending carried out in November 2005, the greatest number of companies responding that they either “have specificplans,” or “have no specific plans, but are interested” inacquiring assets or business divisions from another company cited as their reason for the acquisition the desire to“obtain not only assets, but also market, know-how, employees and other resources.”
27
Analyses of acquired firms have been made by Asaba(2005) and Fukao, Kwon, and Takizawa (2006).

ing and acquired firms, the greater the improvement effect in the financial performance. They
state that this finding is the result of the acquiring firm’s high-quality business resources beingreflected in the post-integration entity. 28 But wecan also interpret it to mean that even in a merger,
the financial improvement effect is greater when
there is a clear difference in power balance (performance) between the acquiring and acquired
firms.
There are a number of problems with Nagaoka’s analysis (2005). In addition to thegrowth rate of sales, Nagaoka quantitatively
examined the effect of M&A on the growth rateof employment and the operating profit ratio. He
found no significant improvement in the latter
two. If no improvement is evident according to
the financial indicators, the empirical result iscertainly not robust. Furthermore, M&A involves
the transfer of assets and liabilities on the balance sheets between acquiring firms and acquired firms. In a merger, because two firms become one, the growth rate of sales should, in thesimplest sense, rise. In measuring the financial
improvement effect of M&A in this paper, weplace greatest emphasis on ROA as a proxyvariable for profitability; partly as a robustness
check, we use the operating profit-to-sale ratio(Profit), labor productivity, and ratio of general
expenses to sales (Cost).
Few prior studies have expressly analyzed
the behavior of acquired firms to distinguish between within and outside of the corporate group;
virtually none have examined firms on the buyer
side. 29 It may be assumed that the power balanceis clear 30 when a strong capital relationship ex28
As stated in Hosono, Sakai, and Tsuru (2006), this is
known as the “relative performance hypothesis.” For details,
see Akhavein, Berger, and Humphrey (1997).
29
In their examination of an improvement in the financial
performance of acquired firms, Fukao, Kwon, and Takizawa(2006) investigated an improvement effect in the financial
performance of acquired firms by distinguishing whether
the acquired firm belongs to the same corporate group or isa non-group firm. However, their different effect did notstatistically significant.
30
The auxiliary survey to the Survey on Planned Capital
Spending of November 2005 contained questions on decision-making within the corporate group. Regarding decisions on capital investment and fund-raising, only 15 percent of firms industry-wide reported that such decisions
were left to the discretion of the subsidiary. Of the morethan 80 percent that remained, 56 percent said that subsidi-

Development Bank of Japan Research Report/ No. 59 19

ists, such as between a parent company and its
subsidiary (or between a top shareholder and acorporate affiliate), and that the acquiring company has more information on the acquiredcompany if the latter belongs to the same corporate group. If this hypothesis is correct, we canfind the result that the improvement in performance of the acquiring firm is significant when theacquired firm belongs to the same corporategroup. Whether or not the acquired firm is listed
gives an indication of whether it is subject tomarket discipline. A firm’s listing status may
also influence the financial improvement effectbrought on by an M&A. We empirically investigate the effect of M&A by distinguishingwhether the acquired firm belongs to the same
corporate group or is a non-group firm andwhether or not they are listed on an exchange. 31
2.

Description of Data and Estimation
Equation

This paper deals with mergers/acquisitions (excluding equal mergers) and business transfers(buyer and seller sides). 32 Corporate financial
data were obtained from the Development Bankof Japan’s Corporate Databank. The database
covers firms (excluding financial companies andinsurance companies) currently listed on either
the first or second section of the Tokyo, Osaka,or Nagoya stock market. The sample period wasfrom 1980 through 2004. Information on M&A
was obtained from Recof’s Databook on M&A
by Japanese Corporations (for the years 1988
through 2002) and the Recof periodical MARR
(for 2003). For the following analysis, we combine information from these two sources, andaries were given a certain amount of discretion, but the parent company retained the authority to order changes; 29
percent said that management was consolidated on agroup-wide basis. Parent companies clearly retain a certain
degree of authority over their subsidiaries.
31
We group the firms into four categories, according towhether they are: 1) listed companies which were subsidiaries (affiliates), 2) listed companies which were not subsidiaries (affiliates), 3) companies which were subsidiaries(affiliates) but unlisted, and 4) companies which were neither subsidiaries (affiliates) nor listed.
32
Equal mergers were excluded because of a report in aprior analysis (Nagaoka (2005)) that the desire of bothboard members to retain joint management can cause corporate governance to become inefficient.
20

Development Bank of Japan Research Report/ No. 59

pool the financial data of firms which have conducted M&A and those which have not. 33
Analysis was made using a fixed-effect model
adjusted for corporate characteristics.
The model is as follows:
Yi,t = α + β1 ∗ M&A Dummy 1i,t + β2 ∗ M&A
Dummy 2i,t + β3 ∗ Asseti,t-1 + β4 ∗ Salegrowthg,t+ ∑ β x ∗ Year Dummyx,t + ei,tx

i: company; t: year; g: industry

The dependent variable Yi,t stands for financial indicators of corporate performance. As explained in the previous section, for these we use
ROA, 34 profit, labor productivity, 35 and cost.
Since the data we use are financial data for eachcompany arranged in time series (panel data), Yi,tindicates financial indicators for company i foryear t. For independent variables we use, in addition to M&A Dummy 1i,t (dummy for year M&A
announced) and M&A Dummy 2i,t (dummy for
year over M&A announced), Asseti,t-1 (real total
assets: log and single lag), Salegrowthg,t (nominal sales growth rate), and Year Dummyx,t. This
paper uses two M&A dummy variables to indicate the presence or absence of M&A: the first(M&A Dummy 1i,t) equals 1 only for the year
when the M&A is announced, and the second(M&A Dummy 2i,t) equals 1 for the years following the announcement. We do this because at thetime the M&A is announced, the company islikely to be expending a great deal of money
ahead of its implementation, conceivably withnegative effects on its corporate financial performance. Practically speaking, however, improvements in organizational reform and humanresources tend to be made in stages, and the effects of M&A emerge gradually as well. If theabove hypotheses are correct, we can anticipate
that the coefficient β1 will be negative and the33
Outliers are defined as a sales growth rate of more (less)than ± 100%. These were eliminated from the data.
34
ROA: (operating profit and loss + nonoperating income)/ total assets.
35
Labor productivity: added value [operating profit andloss + employment costs + rent + tax and dues + patentroyalties + depreciation allowance] / number of employees,
converted into real figures using a GDP deflator to obtain alogarithm.

coefficient β2 will be positive. Moreover, corporate growth depends on other factors besides
M&A. We introduce a number of variables tocontrol these other factors so that we may extract
the improvement in financial performance of
M&A, and only M&A, on corporate performance.
First, if the firm is large in scale already, it isassumed to have reached the stage of maturity interms of growth. We introduce Asseti,t-1 in orderto provide for the possibility that growth willslow. Performance is also affected by the ups anddowns of the industry as a whole, as well as by
the state of the macroeconomy. To control this,
we introduce Salegrowthg,t as a proxy variable
for the former and Year Dummyx,t as a proxyvariable for the latter.
3.

Analysis of the Effect of M&A on Corporate Financial Performance

In this subsection, we examine whether the financial improvement effect of M&A is influenced by certain characteristics of the acquired
firm. In particular, we conduct an empiricalanalysis according to whether the acquired firm
is a member of the same corporate group andwhether it is listed on a stock market.
Figure 4-1 shows the results for acquired
firms, both group and non-group, which arelisted on a stock market. Looking first at ROA,
we see that for both group and non-group firms,
the improvement effect on ROA is negative during the year the M&A is announced, although the
improvement effect for group firms is statistically insignificant. In the years after M&A announcement, however, the result of the group
M&A shows a statistically significant positiveeffect (0.5 percent). For operating profit-to-sales
ratio, all M&A dummies are statistically significant, with the financial improvement effect of
post-M&A amounting to 2.4 percent when a firm
was acquired from within the group and a significantly lower 1.1 percent when it was fromoutside of the group. The improvement effect
was 0.09 percent (group) and 0.04 percent(non-group) when measured in terms of productivity, and –2.6 percent (group) and –0.8 percent(non-group) in terms of cost; both of these findings are significant.
The empirical result of acquired firms, bothgroup and non-group, which are not listed on astock market are shown in Figure 4-2. The coefficient of the post-M&A dummy is a significantly positive on ROA, profit, and labor productivity for group firms. No significant results
were obtained for non-group firms, the value being negative for ROA, profit, and labor productivity.
Comparing the coefficient of the post-M&A
dummy on the basis of whether or not the acquired firm is listed (comparison of Figures 4-1
and 4-2), we see that for group firms, there is no
big difference in ROA when the acquired firm
was in the same group, regardless of its listing
status. However, the coefficients for listed firms
are more statistically significant, and the empirical results show that a merger/acquisition with alisted company produce more substantial improvement effects on profit (+1.7 percent), laborproductivity (0.04 percent), and cost (–2.1 percent). A comparison of coefficients for
non-group firms shows that improvement effects
are significantly greater for listed firms. No significant results were found when a company acquired an unlisted firm.
From the above analysis of each category –group and non-group, and listed and non-listed –we found the empirical result that the greatest
significant improvement to the acquiring firm’s
financial performance occurred when the acquired firm was a listed group firm. 36 The improvement effect on profit, labor productivity
and ratio of cost to net sales was largest in alisted group firm and was robust as well. When
comparing the empirical results for cases where
the target firm was a group or non-group firm,
we found that the improvement effect of M&A
was larger in case of the former, regardless ofwhether the acquired firm was listed or not.
Viewed from the perspective of listing status, theimprovement effect for case where the target
firm acquired the listed firm was larger on thewhole, for both group and non-group firms.
These findings demonstrate the veracity of36

In this paper, our most important consideration in judging the effectiveness of M&A is whether or not the M&A
has caused ROA (return on assets) to improve. The improvement effect of an unlisted group firm is slightly larger
than a listed group firm. But latter case is more statisticallysignificant.
Development Bank of Japan Research Report/ No. 59 21

the hypothesis explained in the preceding subsection. The fact that two firms are in a parent-subsidiary relationship (or a top shareholder-affiliate relationship) means that there is aclear power balance between the two and information(going beyond financial statement) on theacquired firm is accumulated through the dispatching of board members from the parent firm
to the subsidiary. Listed firms, meanwhile, aresubject to market discipline from the stock market. The results of the empirical analysis thus
suggest that the clarity of the power balance, theamount of information on the acquired firm
available prior to the M&A, and the existence ornonexistence of market discipline all greatly influence the extent that M&A will improve theperformance of the acquiring firm. If the power
balance is clear, and the acquiring company hascollected sufficient information on the firm it intends to acquire, restructuring will be led by theacquiring firm and the acquired firm’s profitableand unprofitable business divisions can be discrened and which to retain and which to disposeof can be decided by the acquiring firm. If, on theother hand, the acquired firm is listed on a stock
market, the management of listed target firms arelikely to show a greater profit-orientation as aresult of the discipline exerted by the stock market. 37
The next question we examine is this: Whena company is considering an M&A, which typeof firm should it acquire in order to gain thegreatest improvement effect from the transaction:
firms which were subsidiaries (affiliates) but
unlisted, or listed firms which were not subsidiaries (affiliates) – that is, should it be a firm withwhich it has a clear power balance and about
which it is well informed, or a firm which operates under market discipline? To perform thiscomparison, it is necessary to examine the empirical results for the above two cases. In termsof ROA, the most important barometer of profitability in this paper, we confirmed a significant
improvement effect when M&A takes place
within the group but unlisted. In terms of laborproductivity, the improvement in the financial
performance is significantly larger in case of the37
The Cabinet Office (2004) pointed out that clashes inorganizational culture and interests were important reasonsfor the failure of M&A.

22

Development Bank of Japan Research Report/ No. 59

unlisted group firm. The improvement on profit
is larger in the case of the listed non-group firm,
although the results of both cases were statistically significant. The issue of robustness is one
that needs further investigation. The results for
ROA suggest that a clear power balance with thetarget firm, and the accumulation of information
on it prior to the M&A, is a more important condition for improving the effect of the M&A to
the acquiring firm than that the target firm belisted. 38
The empirical result in this paper – that information on the target firm is of key importancein maximizing the benefits of an M&A to thebuyer – may provide a valuable suggestion on
how to deal with the company to be acquired,namely that the acquiring firm should not move
too quickly to complete the acquisition. The financial improvement effect of M&A are likely to
be greater when the buyer begins its connection
with the target by means of capital participation,and follows this with investment. Information on
the target firm is collected gradually over thisperiod, increasing the probability of a successful
outcome. Only at this stage should the acquiringfirm go ahead with the acquisition.
The finding that listing is comparatively
unimportant may point to the immaturity of theJapanese stock market. Because of long-termcross-shareholdings and other factors, many of
the stockholders in the Japanese market haveheld their shares for long periods of time; thismay have prevented market discipline fromfunctioning. If discipline improves in the future,and the number of firms with diverse shareholders increases, firms selecting a target for M&A
may come to place greater emphasis on the target’s being listed.

38

Tohmatsu Consulting’s Survey on M&A Trends (February 2006) investigated the attitudes of companies with experience in M&A. There were 104 responses. Asked what
they found hard to accomplish during the target selection
phase, many respondents mentioned the difficulty of obtaining information on the target firm, pointing to problems
like “predicting the effect of integration on the basis of limited information,” “finding promising targets,” and “obtaining adequate, good-quality information.”Figure 4-1. Merger/Acquisition when Acquired Firm is Listed
ROA

ProfitCost

M&A-0.002-0.010 **(0.71)
M&ADummy20.005 **
(0.03)(0.21)(0.00)(0.00)(0.00)(0.05)(0.00)(0.08)

Asset-0.005 ***-0.005 ***0.003 ***

0.003 ***

0.090 ***

0.090 ***

-0.002 ***-0.002 ***(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)

Salegrowth

0.00002 ***0.00002 ***0.00001 *0.00001 *0.00011 ***0.00011 ***-0.00001 *-0.00001 *(0.00)(0.00)(0.08)(0.08)(0.00)(0.00)(0.06)(0.06)

Constant

0.173 ***

0.173 ***

0.010

0.010

7.687 ***

7.690 ***

1.026 ***

1.026 ***

(0.00)(0.00)(0.33)(0.30)(0.00)(0.00)(0.00)(0.00)

M&ADummy1

M&A (Group)

Labor Productivity

M&A (Group)

M&A

M&A (Group)

M&A

M&A (Group)-0.019 ***-0.027 ***-0.023-0.0210.020 ***

M&A

(0.03)(0.00)(0.00)(0.49)(0.58)(0.00)(0.00)

0.004

0.024 ***

0.011 ***

0.093 ***

0.043 **

-0.026 ***-0.008 *0.022 ***

R-sq

0.24

0.24

0.06

0.06

0.16

0.16

0.04

0.04

obs

50494

50494

50494

50494

50328

50328

50494

50494

Notes: 1. Upper figures are coefficient values; lower figures are P values.
2. *** indicates P value of 1% level and significant; ** indicates 5% level and significant; * indicates 10% level andsignificant.

ggFigure 4-2. Merger/Acquisition when Acquired Firm is Unlisted
q

q

ROA
M&A(Group)

ProfitM&A
0.008 **

M&A(Group)
0.004

Labor Productivity
M&A

M&A(Group)

0.001

0.022

Cost

M&A

M&A(Group)

M&A

0.034

-0.004-0.005

M&ADummy1

0.000(0.96)(0.02)(0.54)(0.84)

M&ADummy20.006 *

-0.0040.008 *

-0.001(0.06)(0.17)(0.10)(0.82)(0.04)(0.37)(0.33)(0.21)

Asset-0.005 ***-0.005 ***0.003 ***

0.003 ***

0.090 ***

0.091 ***

-0.002 ***-0.002 ***(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)

Salegrowth

0.00002 ***0.00002 ***0.00001 *0.00001 *0.00011 ***0.00011 ***(0.00)(0.00)(0.08)(0.08)(0.00)(0.00)(0.06)(0.06)

Constant

0.173 ***

0.173 ***

0.008

0.008

7.683 ***

7.680 ***

1.028 ***

1.029 ***

(0.00)(0.00)(0.41)(0.43)(0.00)(0.00)(0.00)(0.00)(0.54)

0.057 **

(0.21)(0.58)(0.37)-0.018-0.0050.005(0.00)(0.00)-0.00001 *-0.00001 *

R-sq

0.24

0.24

0.06

0.06

0.16

0.16

0.04

0.04

obs

50494

50494

50494

50494

50328

50328

50494

50494

Notes: 1. Upper figures are coefficient values; lower figures are P values.
2. *** indicates P value of 1% level and significant; ** indicates 5% level and significant; * indicates 10% level andsignificant.

However, even if market discipline should
improve, the cost of listing on a stock market,
with investor relations included, remains highand many fine firms wish to be listed but do nothave the wherewithal. Others make a strategic
decision not to be listed. Should this situation
continue, firms considering acquiring an unlisted
firm should find that the gradual approach described above – from capital participation
through investment expansion – will ultimately
provide them with the greatest financial benefit.

4. Analysis of the Effect of Business Transfers on Corporate Financial Performance
Business transfers involve the transfer of assets
on the division level, rather than on the level offirms in their entirety. This is an importantmeans by which firms pursue efficiency in the
allocation of their assets. For this reason, we
need to consider how business transfers bring
improvement not only to the buyer side but to theseller side as well.
The empirical results on business transfers
are shown in Figures 4-3 and 4-4. While the improvement on ROA was statistically insignificant

Development Bank of Japan Research Report/ No. 59 23

for buyer and seller alike, the post-M&A coefficient was positive. We now examine the resultsfor indicators other than ROA, for both the buyer
and the seller sides. M&A Dummy 2 for thebuyer side reveals significant beneficial effect on
both profit and labor productivity for deals outside of the corporate group. On the seller side,
there is also a beneficial effect on profit and labor productivity, regardless of whether the saletakes place within or outside of the group.
This transfer of assets at the level of the division, rather than the company, may not im-prove finances to the extent of causing a statistically significant increase in ROA. We confirm,
however, that it does improve performance inother indicators – profit ratio and productivity –for the seller as well as the buyer. The desire tostrengthen existing businesses is one of the mostcommon reasons recently given for attempting an
M&A (Figure 4-5). Business transfers, by whichfirms can strengthen their core businesses andsell off non-core ones, can thus be viewed ascontributing to the profitability of buyer andseller firms alike.

Figure 4-3. Business Transfer between Two Listed Firms: The Buyer SideROA

ProfitCost

M&A-0.0020.000(0.70)

M&ADummy20.005(0.30)(0.80)(0.89)(0.05)(0.36)(0.02)(0.89)(0.32)

Asset-0.005 ***-0.005 ***0.003 ***

0.003 ***

0.091 ***

0.090 ***

-0.002 ***-0.002 ***(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)

Salegrowth

0.00002 ***0.00002 ***0.00001 *0.00001 *0.00011 ***0.00011 ***-0.00001 *-0.00001 *(0.00)(0.00)(0.08)(0.08)(0.00)(0.00)(0.06)(0.06)

Constant

0.173 ***

0.173 ***

0.008

0.009

7.672 ***

7.684 ***

1.028 ***

1.028 ***

(0.00)(0.00)(0.43)(0.39)(0.00)(0.00)(0.00)(0.00)

M&ADummy1

M&A(Group)

Labor Productivity

M&A(Group)

M&A

M&A(Group)

M&A

M&A(Group)

0.002-0.0070.090 *

-0.0470.000

M&A(0.94)(0.85)(0.30)(0.08)(0.24)(0.98)(0.53)

0.001-0.0010.011 **

0.035

0.071 **

0.001

-0.006

0.005

R-sq

0.24

0.24

0.06

0.06

0.16

0.16

0.04

0.04

obs

50493

50494

50493

50494

50327

50328

50493

50494

Notes: 1. Upper figures are coefficient values; lower figures are P values.
2. *** indicates P value of 1% level and significant; ** indicates 5% level and significant; * indicates 10% level andsignificant.

Figure 4-4. Business Transfer between Two Listed Firms: The Seller SideROA

ProfitLabor Productivity

Cost

M&A(Group)

M&A

M&A(Group)

M&A

M&A(Group)

M&A

M&A(Group)

M&A-0.005-0.001-0.021 ***-0.011-0.142 ***-0.067

0.009

0.001

(0.23)(0.86)(0.00)(0.15)(0.00)(0.12)(0.18)(0.89)

M&ADummy2

0.002

0.004

0.020 ***

0.018 ***

0.113 ***

0.092 ***

-0.003-0.008(0.51)(0.30)(0.00)(0.00)(0.00)(0.00)(0.45)(0.22)

Asset-0.005 ***-0.005 ***0.003 ***

0.003 ***

0.091 ***

0.091 ***

-0.002 ***-0.002 ***(0.00)(0.00)(0.00)(0.00)(0.00)(0.00)

Salegrowth

0.00002 ***0.00002 ***0.00001 *0.00001 *0.00011 ***0.00011 ***(0.00)(0.00)(0.08)(0.08)(0.00)(0.00)(0.06)(0.06)

Constant

0.173 ***

0.173 ***

0.008

0.008

7.679 ***

7.678 ***

1.028 ***

1.028 ***

(0.00)(0.00)(0.42)(0.45)(0.00)(0.00)(0.00)(0.00)

M&ADummy1(0.00)(0.00)-0.00001 *-0.00001 *

R-sq

0.24

0.24

0.06

0.06

0.16

0.16

0.04

0.04

obs

50494

50494

50494

50494

50328

50328

50494

50494

Notes: 1. Upper figures are coefficient values; lower figures are P values.
2. *** indicates P value of 1% level and significant; ** indicates 5% level and significant; * indicates 10% level andsignificant.

24

Development Bank of Japan Research Report/ No. 59

Figure 4-5. Objectives of M&A(Year)
2005

68.7

2004

68.7

2003

68.4

2002

76.3

0

50

100

(%)

Strengthen existing business

Expand peripheral business

Strengthen allian

Buyout, invest

Enter market, diversify

Other, unknown

Source: Recof MARR

Development Bank of Japan Research Report/ No. 59 25

Conclusion
M&A have become a widespread tool to accelerate corporate restructuring. Yet, to date, there has
been insufficient research on whether M&A contribute to the efficient allocation of resources andto increased profitability. Accordingly, this paper
aimed to examine the situation of Japan’s M&A
market in recent years and to conduct an empirical analysis of whether M&A have led to an improvement in acquiring firms’ profitability, productivity, etc. The following is a summary of thefindings of this papers as well as an outline of
future research tasks.
(1) Japan’s M&A market has expanded, reflecting legal changes with regard to the
M&A environment as well as an increased
awareness of the need to improve profitability. The objectives firms pursue when conducting M&A can be divided into the exploitation of synergy effects, the raising ofcorporate value (through business rehabilitation, buyouts, etc.), and defensive strategies. Looking at major individual cases,
clear changes in the underlying objectives
over time can be observed. From the second
half of the 1990s up until around 2001,
M&A were largely driven by industry consolidation aimed at the exploitation of synergy effects as well as by the advance into
overseas markets. From 2002 onward, M&A
have focused on corporate rehabilitation led
by the government, banks, and private investment funds. And since around 2005,
more proactive M&A as part of medium- tolong-term growth strategies have dominated.
(2) The examination of the relationship between
M&A and business fixed investment using datafrom the Development Bank of Japan’s Survey
on Planned Capital Spending suggested that
M&A and fixed business investment may not
be substitutes but important complimentary
tools in firms’ growth strategies.
(3) The results of the empirical analysis indicatethat with regard to acquisitions, the improvement in performance of the acquiringfirm was statistically significant and largest
in the case when the acquired firm was an
intra-group firm listed on the stock exchange, and this result was robust. Next, thecomparison of the estimation results of26

Development Bank of Japan Research Report/ No. 59

non-listed intra-group firms and of listed
non-group firms confirmed that the former
experienced a significant improvement in
ROA. This suggests that a clear balance ofpower and the amount of information available vis-à-vis the acquired firm were more
important for an improvement in the financial performance of the acquiring firm thanmarket discipline. The accumulation of information is one of the beneficial effects ofa relationship with the acquired firm thatbegins with a capital participation and a
gradual increase in the investment. With regard to market discipline, its role may become more important in the future for theselection of M&A targets as the Japanesestock market becomes more mature. Nevertheless, if may be conjectured that even if
the role of market discipline were to increase, there will still be firms which will
not list because of the costs involved and forstrategic reasons, and in this case, a gradualapproach may still provide the greatest financial benefits for the acquirer.
(4) With regard to business transfers, buyers ofassets in non-group M&A and sellers of assets in the case of both intra-group andnon-group M&A were found to register improvements in operating profit-to-sales ratios
and labor productivity. Given that M&A activity in recent years has concentrated on thestrengthening of core business areas, acquisitions of businesses related to core businessareas and the sale of non-core businesses
were shown to lead an improvement in profitability both for sellers and buyers.
This paper examined the characteristics oftarget firms in M&A that contributed to an improvement in the financial performance of acquiring firms as well as the relationship with thetarget firm that is important for ensuring the
success of an M&A deal. Questions that this paper did not address are the possibility that the
improvement effects of M&A may differ depending on the characteristics of the acquiringfirm (such as whether it is a foreign-owned orJapanese firms, differences in ownership structure, etc.) as well as the extent to which M&A
activity affects industries and the economy overall. These are issues left for future research.

Appendix 1 Number of M&A by Industry and ROA
Food & Beverages

0.02
0.01
0.00
85-89

90-94

95-99

M&A frequency

Textiles

(%)

(%)

(%)
0.03

0.010

10

8

0.008

8

6

0.006

6

4

0.004

4

2

0.002

2

0

0.000

0
85-89

00-06

90-94

(%)
8

0.005
0.004

6

0.003
4
0.002

8
6

0.004

4
2

0.000

0

0.000

M&A frequency

10

0.006

0.002

95-99

(%)

0.008

2

0
85-89

00-06

(%)

0.050

10

(%)
0.008

0.040

8

0.006

0.030

6

0.020

4

0.010

2

0.000

0
95-99

M&A frequency

ROA (right scale)

6
0.004
4
0.002

2

0.000

0

M&A frequency

90-94

95-99

00-06
ROA (right scale)

Iron & Steel
(%)

(%)

(%)

0.010

10

0.008

8

0.006

6

0.004

4

2

0.002

2

0

0.000

6
4

M&A frequency

8

ROA (right scale)

8

95-99

10

85-89

0.014
0.012
0.010
0.008
0.006
0.004
0.002
0.000
90-94

00-06

(%)

00-06

Non-Ferrous Metals

85-89

95-99

Cement, Ceramics & Glass

Chemicals

(%)

90-94

M&A frequency

ROA (right scale)

(%)

90-94

ROA (right scale)

(%)
0.010

0.001

85-89

00-06

Publishing & Printing

Pulp & Paper

90-94

95-99

M&A frequency

ROA (right scale)

(%)

85-89

(%)

10

00-06

0
85-89

90-94

95-99

M&A frequency

ROA (right scale)

00-06
ROA (right scale)Transportation Machinery

General Machinery
(%)

(%)

(%)
10

0.03

(%)

0.03

8

8
0.02

6
4

0.01

6

0.02

4

0.01

2

2
0.00

0
85-89

90-94

M&A frequency

95-99

00-06
ROA (right scale)

0.00

0
85-89

90-94

M&A frequency

95-99

00-06
ROA (right scale)

Development Bank of Japan Research Report/ No. 59 27

Appendix 1 Number of M&A by Industry and ROA (continued)
Precision Machinery

Electric Machinery
(%)

(%)

(%)

0.05

10

0.04

8

0.03

6

0.02

4

0.01

2

0.00

0
85-89

90-94

95-99

M&A frequency

4
2
0

M&A frequency

0.002
0.001
0.000

7
6
5
4
3
2
1
0

0.15
0.10
0.05
0.00

8
6

0.01

4
2

0.00

0
85-89

0.10
0.08
0.06
0.04
0.02
0.00

M&A frequency

4
2
0

0.000
90-94

95-99

00-06
ROA (right scale)Entertaiment

0.010
0.005
0.000

28

6

0.002

(%)

0.015

Sources:8

0.004

M&A frequency

(%)
7
6
5
4
3
2
1
0

M&A frequency

10

0.006

ROA (right scale)

0.020

Notes:ROA (right scale)

(%)

85-89

0.025

95-99

00-06

0.008

00-06

Real Estate & Hotels

90-94

95-99

(%)

14
12
10
8
6
4
2
0

85-89

90-94

Electric & Gas utilities
(%)

(%)

ROA (right scale)(%)

Telecom. & Information

M&A frequency

00-06

(%)
0.02

ROA (right scale)

95-99

95-99

M&A frequency

00-06

(%)

90-94

90-94

Transportation

0.20

85-89

(%)

0.00
85-89

(%)

M&A frequency

ROA (right scale)

0.01

ROA (right scale)

95-99

00-06

7
6
5
4
3
2
1
0

Wholesale & Retail

90-94

95-99

0.02

00-06

(%)

85-89

90-94

Construction

(%)
14
12
10
8
6
4
2
0

0.003

M&A frequency

6

ROA (right scale)

(%)

95-99

8

85-89

Mining

90-94

10

00-06

(%)

85-89

(%)

0.007
0.006
0.005
0.004
0.003
0.002
0.001
0.000

00-06
ROA (right scale)

1.
2.

(%)

0.10

6
5
4
3
2
1
0

0.08
0.06
0.04
0.02
0.00
85-89

90-94

M&A frequency

95-99

00-06
ROA (right scale)Figures for ROA are five-year averages (or a six-year average for the most recent period).
“M&A frequency” is defined as the number of M&A transactions / number of firms during each period. The number of M&A transactions constituting the numerator isthe aggregate value for five years (or for six years for the most recent period). The number of corporations constituting the denominator is the number of firms coveredby the Statistical Survey on Establishment and Enterprise Census carried out during each period (86, 91, 96, and 01; simple surveys excluded).
Recof MARR and the Ministry of Internal Affairs and Communications, Establishment and Enterprise Census.

Development Bank of Japan Research Report/ No. 59

Appendix 2 Three-way Mergers(Comparison with Mergers Using Subsidiaries in the Former Commercial Code)OUT-IN merger(old commercial code: using subsidiaries)
shareholderXshareholder
Y

C foreignfirm

A firm's
stock
transfershareholderX

old shareholder
Y

C foreignfirm

A survivng
subsidiary firm

100% subsidiary firm
A subsidiaryfirm

B firmmerger
Japan

Japan

OUT-IN three-way merger(current corporation law)shareholder
X

C foreign
firmshareholderYshareholder
X

C firm's
stock
transfer

C foreignfirm

C firm's
stock transfer
100% subsidiary firm
A subsidiaryfirm

old shareholderY

100% subsidiary firm
B firm

A survivng
subsidiary firm

mergerJapan

Sources:Japan

Maeda Masahiro, Kitamura Masashi, “The all Letter of the New Corporation Law (in Japanese)”, etc.

Development Bank of Japan Research Report/ No. 59 29

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Development Bank of Japan Research Report/ No. 59 31

List of Back Numbers (Including JDB Research Report)
No. 59 Do M&A Improve Corporate Financial Performance in Japan? (this issue)
No. 58 Survey on Planned Capital Spending for Fiscal Years 2005, 2006 and 2007 (Conducted in June 2006)
September 2006
No. 57 Policies to Restore the International Competitiveness of Japanese Semiconductor Industry
August 2006
No. 56 Survey on Planned Capital Spending for Fiscal Years 2005 and 2006 (Conducted in November 2005),
January 2006
No. 55 Survey on Planned Capital Spending for Fiscal Years 2004, 2005 and 2006 (Conducted in June 2005),
September 2005
No. 54 Improving Corporate Value through Disaster Management: Prospects of Socially Responsible Investment (SRI) for Disaster Reduction, July 2005
No. 53 Japan's Innovative Capacity and Policies for Commercializing New Technologies: Using Carve-Outs toCreate New Industries, May 2005
No. 52 Intelligent Transport System (ITS): Current State and Future Prospects, May 2005
No. 51 Recent Trends in the Japanese Economy: Pause in Recovery, March 2005
No. 50 Corporate Capital Spending Behavior and Innovation Efforts: Findings of Survey on Capital Spending
Behavior (Conducted in November 2004), March 2005
No. 49 Survey on Planned Capital Spending for Fiscal Years 2004 and 2005 (Conducted in November 2004),
January 2005
No. 48 Recent Trends in the Japanese Economy: Medium-term Outlook of Japanese Industrial Structure, January 2005
No. 47 Survey on Planned Capital Spending for Fiscal Years 2003, 2004 and 2005 (Conducted in June 2004),
September 2004
No. 46 Recent Trends in the Japanese Economy: Impact of Rising International Commodity Prices on Corporate Input/Output Behavior, September 2004
No. 45 How Life Cycle Assessment (LCA) Can Enhance the Fight against Global Warming, August 2004
No. 44 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Japanese Economy with
Special Focus on the Flow of Funds and Finance, March 2004
No. 43 Survey on Planned Capital Spending for Fiscal Years 2002, 2003 and 2004 (Conducted in August 2003),
November 2003
No. 42 Promoting Corporate Measures to Combat Global Warming: An Analysis of Innovative Activities in the
Field, September 2003
No. 41 Prospects and Challenges for End-of-Life Vehicle Recycling, May 2003
No. 40 Survey on Planned Capital Spending for Fiscal Years 2002 and 2003 (Conducted in February 2003),
May 2003
No. 39 China’s Economic Development and the Role of Foreign-Funded Enterprises, May 2003
No. 38 Decline in Productivity in Japan and Disparities Between Firms in the 1990s: An Empirical Approach
Based on Data Envelopment Analysis, April 2003
No. 37 Trends in Socially Responsible Investment: Corporate Social Responsibility in a New Phase, March
2003

No. 36 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Sustainability of the Japanese Economy, February 2003
No. 35 Concerns for the Future and Generational Consumption Behavior, February 2003
No. 34 Prospects and Challenges Surrounding Japan’s Electrical Equipment Industry: General Electrical
Equipment Manufacturers’ Restructuring of Operations and Future Prospects, November 2002
No. 33 Survey on Planned Capital Spending for Fiscal Years 2001, 2002 and 2003 (Conducted in August 2002),
November 2002
No. 32 Behavior Trends of Japanese Banks toward the Corporate Sector and Their Impact on the Economy,
October 2002
No. 31 Microstructure of Investment and Employment Dynamics: Stylized Facts of Factor Adjustment Basedon Listed Company Data, October 2002
No. 30 Recent Trends in the Japanese Economy: Globalization and the Japanese Economy, August 2002
No. 29 Corporate Financing Trends in Recent Years: Fund Shortages and Repayment Burden, August 2002
No. 28 Urban Renewal and Resource Recycling: For the Creation of a Resource Recycling Society, July 2002
No. 27 Labor’s Share and the Adjustment of Wages and Employment, June 2002
No. 26 Survey on Planned Capital Spending for Fiscal Years 2001 and 2002 (Conducted in February 2002),
May 2002
No. 25 Environmental Information Policy and Utilization of Information Technology: Toward a Shift in Environmental Policy Paradigm, March 2002
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information
Technology (IT) Goods, March 2002
No. 23 Microstructure of persistent ROA decline in the Japanese corporate sector: Inter-company disparities
and investment strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects ofEvolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisationof Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansionof the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000

No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on EnterpriseData, September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September 2000

No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries,
June 2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market
for Underground Remediation, May 2000

No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations, theDebt Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other AsianCountries, November 1999

JDB Research Report
No. 96 Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999
No. 95 Efforts to Protect the Natural Environment in the United States and Germany: Environmental Mitigation and Biotope Conservation, July 1999
No. 94 Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999
No. 93 Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO sector
through comparison with Germany, June 1999
No. 92 The Impact of Demographic Changes on Consumption and Savings, March 1999
No. 91 Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March 1999
No. 90 Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999
No. 89 Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japan and the U.S., December 1998
No. 88 Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998
No. 87 Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998
No. 86 Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998
No. 85 Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998
No. 84 R&D Stock and Trade Structure in Japan, August 1998
No. 83 Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998
No. 82 The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptanceis Essential, May 1998
No. 81 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and1998 Conducted in August 1997, March 1998
No. 80 Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998
No. 79 Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January 1998

No. 78 Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series and Environmental Cost, January 1998
No. 77 Current Conditions and Issues of Computerization in the Health Care Industry: For the Construction of
a Health Care Information Network, January 1998
No. 76 Household Consumption and Saving in Japan, December 1997
No. 75 The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to Support
Diverse Consumer Choices, November 1997
No. 74 Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International
Trade, October 1997
No. 73 The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the Effects on Productivity and Employment, October 1997
No. 72 An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997
No. 71 Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of Economic Recovery, August 1997
No. 70 Corporate Fundraising: An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm Data
from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of theElectric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key, October 1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of the Current Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and1996 Conducted in August 1995, October 1995

No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October 1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part 2, July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level,
May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration, December
1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February
1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and1992 Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and1991 Conducted in August 1990, September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals in Japan, The US, and Korea an Assessment of Economic Efficiency, February 1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing
Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years 1988
and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987