DBJ Discussion Paper Series, No. 1603

Gains from Mergers and Acquisitions in JapanAli M. Fatemi(DePaul University)
Iraj Fooladi(Dalhousie University)
Niloofar Garehkoolchian(DePaul University)

September 2016

Discussion Papers are a series of preliminary materials in their draft form. No quotations,reproductions or circulations should be made without the written consent of the authors in orderto protect the tentative characters of these papers. Any opinions, findings, conclusions or
recommendations expressed in these papers are those of the authors and do not reflect the viewsof the Institute.

Gains from Mergers and Acquisitions in Japan
By

Ali M. Fatemi*
Iraj Fooladi**&
Niloofar Garehkoolchian****

DePaul University (corresponding author). The support provided by the Development Bank of Japan as a Shimomura Fellow

is gratefully acknowledged.

**

Dalhousie University, Research support provided by the Douglas MacKay Chair is gratefully acknowledged.

***

DePaul University

JEL Classification: G34; G31

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Gains from Mergers and Acquisitions in Japan

Abstract
In this study we focus on the dynamics of the market for corporate control in Japan. Analyzing mergers andacquisitions that take place between January 2000 and December 2014, we evaluate the short-term wealtheffects of these corporate events from the perspectives of shareholders of both the acquiring and the acquired
firms. We find that these events are not consequential for the shareholders of acquiring firms as they do notexperience any significant wealth effects. However, these findings indicate that the acquired firms’shareholders reap significant benefits. Given the more recent data used in this study, we conclude that Japan’s
market for corporate control has become more competitive and now behaves in a manner similar to those of the
US and other Western nations. We also analyze the longer-term wealth effects of these acquisitions by studying
the pattern of abnormal returns earned by acquiring shareholders over a sixty-month period following the event.
These results show no discernable pattern of long-term gains to the shareholders. The study also analyzes thelonger-term effects of mergers on the acquiring firm’s environmental, social and governance performance.
Results indicate that mergers produce no discernable improvements in the firm’s performance on any of thesefronts.

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Gains from Mergers and Acquisitions in Japan

1.

Introduction

Often referred to as the science of valuation, the discipline of finance has usually had its inquiries focused on
the valuation consequences of mergers and acquisitions. The questions investigated, both at theoretical and theapplied level, have typically centered around the nature of gains (or losses) associated with these activities andthe motivations of decision makers behind such corporate events. Broadly speaking, the question of valuation
can be evaluated from the perspective of stakeholders at large: shareholders, creditors, managers, employees,
consumers, the society, and the environment. Within such an approach, a Pareto-optimal outcome of a merger
or an acquisition would be one that would enhance the wealth position of at least one group of its stakeholders
without creating an adverse effect on any of the remaining stakeholders. However, given that the current
paradigm of finance maintains that the sole responsibility of the firm is to its shareholders (and that it should
be only concerned about maximizing the value of their claims on the firm’s assets), the literature has had analmost exclusive emphasis on analyzing the consequences of mergers and acquisitions from the perspectives ofthe shareholders involved.
This study is designed to evaluate the consequences of mergers and acquisitions within the Japanese markets
from three different perspectives: short-term from the perspective of all shareholders involved; longer-term fromthe perspective of acquiring shareholders; and longer-term from a societal and environmental perspective. We
analyze mergers and acquisitions that take place during the first 15 years of the 21st Century to study thenature of their wealth effects on the positions of both the acquiring and the acquired firms. In doing so, we
explore the question of what set of factors explain these wealth effects. In particular, we are interested ininvestigating the role played by the acquiring firm’s commitment to corporate social responsibility. We thenlook into the question of whether these corporate events create value for the acquiring firm’s shareholders overthe long term. Finally, we look into the question of how these events affect the longer-term performance of theacquiring firm along the environmental, social and governance dimensions.
Section 2 further motivates the paper and provides a brief overview of the extant work on the valuationconsequences of mergers and acquisitions. The data and the methodology utilized are described in Section 3.
Our results are presented and discussed in Section 4 and the conclusions are presented in Section 5.
2.

Extant Research and Hypotheses

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The bulk of the research dealing with the valuation consequences of mergers and acquisitions has taken placeover the last five decades and in the aftermath of the introduction of the event-study methodology by Fama et al.
(1969). Since then, the literature witnessed a flurry of research papers focused on the short term wealth effectsof mergers and acquisitions. Included among these are the works of Dodd and Ruback (1977), Franks, Boyles
and Hecht (1977), Bradley (1980), Asquith (1983), Eckbo (1983), Dennis and McConnell (1986), Bradley, Desaiand Kim (1988), Franks and Harris (1988) Eckbo and Langohr (1989), Servaes (1991), Walker (2000), Mullherin
and Boone (2000), Andrade, Mitchell and Stafford (2001), Graham, Lemmon and Wolf (2002), Bae, Kang andKim (2002), Moeller, Schlingemann and Stulz (2005), Ang and Chen (2006), and Alexandridis, Petmezas andTravlos (2010), Erel, Liao and Weisbach (2012).
The unanimous conclusion of these studies is that shareholders of target firms experience significantly positive
returns on the day of, and the day after, the announcement of these corporate restructuring events. For
example, Eckbo (1983) finds significant positive cumulative abnormal returns (CARs) of 6% in the US and
Eckbo and Langohr (1989) report finding CARs of 16% for acquisitions in the French markets. Evaluatingtrans-national mergers and acquisitions in the pacific-basin region, Desai, Dukas and Fatemi (1996) also reportsignificant abnormal returns to the target shareholders. Focusing on the deal’s tenor, Servaes (1991) finds thatthese abnormal returns are higher for hostile bids (32%) than they are for friendly bids (22%). And, expanding
the window within which these abnormal returns are measured to two weeks, Bradley, Desai and Kim (1988)
find that these shareholders earn CARs as high as 45% (for the 1990-2001 period).
On the other hand, the near unanimous finding of these studies has been that the acquiring firms realize
abnormal returns that are statistically indistinguishable from zero. For example, Asquith (1983) reports thatthe shareholders of the acquiring firm earn only a small return (of around 0.2%) whereas Andrade, Mitchell andStafford (2001) find that such returns are negative, albeit insignificantly so. Additionally, as reported by
Dennis and McConnell (1986) these negligible returns cannot be attributed to the anticipation of the transaction,
as the one-month run-up in the share price of the acquirer is found to be negligible.
Finally, and again as measured by abnormal returns around the announcement date, these findings also
indicate that in the short-term mergers and acquisitions are value-enhancing activities in that they increase the
combined value of the acquiring and the acquired firms. For example, Bradley, Desai and Kim (1988) reportthat an equally weighted portfolio of acquirers and targets earns a 7% abnormal return. Of course, given thatthe target shareholders gain and the acquirers do not lose, this is not a surprising outcome. While these short-4

term wealth effects are found to be positive, the longer-term effects are reported to be somewhat different.
Indeed, while not unanimous, most such evidence indicates that long-term abnormal returns are at best
insignificant. For example, Ang and Chen (2006) report the abnormal returns for the 36 month period following
the event are insignificantly negative for cash acquisitions and significantly negative for stock transactions.
Therefore, a fairly substantial body of literature has been devoted to the analysis of the effect of mergers andacquisitions on the welfare of only one group of the firm’s stakeholder; the shareholders. And, the accumulated
evidence indicates that the shareholders of target firms realize significant short-term gain in this process butthat the acquiring firm shareholders do not experience such a gain. Longer-term, it is not clear that even thisclass of stakeholders ends up any better off.
More recently, a number of studies have been motivated by the question of the impact of mergers andacquisitions on other stakeholders. For example, introducing the issue of corporate social responsibility into thedebate, Akta, deBodt and Cousin (2011) consider the possible impact of targets’ corporate social responsibility(CSR) on acquirers’ gains and find that they are a positive function of target’s CSR performance. Deng, Kangand Low (2013) analyze the effect of acquirers’ corporate social responsibility on their wealth effects and findthat firms with high CSR scores earn higher announcement returns. They further find that high CSR firms
produce better post-merger operating performance and that they also perform better when judged on the basisof the value-weighted portfolio of the acquirer and the target. Equally importantly, they find that high CSR
firms generate positive long-term returns for their shareholders. However, to the best of our knowledge, theliterature is void of studies with a focus on the effects of mergers and acquisitions on the welfare of otherstakeholders. This study is designed as an exploratory work in that direction. More specifically, we study the
post-merger pattern of changes in the firm’s performance along the social, environmental and governancedimensions.
The available empirical evidence indicates that, other than the short-term wealth gains accrued to theshareholders of acquired firms, mergers and acquisitions do not create any significant longer-term shareholder
benefits. We expect to find similar results in our analysis of the consequences of Japanese firms’ mergers andacquisitions. However, we expand the scope of such an analysis to study the effect of these corporate
restructurings on all stakeholders. Thus, we examine the firm’s post-merger performance on the environmental,social and governance (ESG) fronts. A priori, it is not clear what the effect on the surviving firm’s performanceon the ESG front would be. Its performance would improve if the post-merger firm finds it essential to its long-5

term interest to improve its relationship with these other stakeholders. The same kind of outcome can be
expected if, due to increased visibility and the added scrutiny entailed, the post-merger firm would find it moredifficult to externalize its costs. On the other hand, ESG performance has the potential to show signs ofdeterioration if, as a result of an enhanced position of power or of an improved bargaining position, the firm
extracts more concessions from its other stakeholders (such as regulatory agencies, labor unions, communities)
or if it finds it easier to externalize some of its costs. This improved bargaining position, and its attendant
benefits, may indeed be a factor motivating the so-called “activist” investors (that seek to enhance shareholder
returns) in nudging the firm to increase its scale. Therefore, when the first scenario prevails, we would expect
to observe improvements in the firm’s performance on ESG factors. Under the second scenario, a deteriorationof the firm’s ESG performance would be observed.
2.1 Evidence from Japanese Mergers and Acquisitions

Japanese mergers and acquisitions have also been extensively examined, including analyses by Kang et al.,(2000), Schaik and Steenbeek (2004), Inoue and Kato (2006), Kakuda and Takeda (2006), Hanamura et al.,(2011), Mehrotra, et al. (2011), Nogata, Uchida and Goto (2011), Yeh (2013), Higgins (2013). Specific details
aside, the overall conclusion that can be drawn from these works is that the market for corporate control may
behave differently in Japan than it does in the US and other Western countries.
Examining the reaction of stock prices of firms involved in domestic Japanese mergers and acquisitions between
1997 and 1993, Kang et al. (2000) find that cumulative abnormal returns for acquiring firms are significantly
positive.1 Schaik and Steenbeek (2004) analyze mergers of non-financial Japanese firms that took place
between 1993 and 2003 and find that bidders realize a positive abnormal return around the announcement date.
Unlike Kang et al. (2000), they do not find an association between announcement returns and the strength ofbidders' relationship with banks. Therefore, given that the time period of their analysis starts when that ofKang, et al. ends, they argue that their results may indicate that Japan’s market for corporate control has
experienced an evolution that renders the importance of the main bank diminished.
Inoue and Kato (2006) examine mergers and acquisitions that took place between 1990 and 2002 and find thatsuch announcements tend to lead to increased stock prices for both targets and acquiring firms. However, theirfindings indicate that the market reaction for target firms is larger than it is for acquiring firms. Similar results
1

However, they also report that acquirers experience a significantly negative wealth effect when the acquisition is motivated by rescue
purposes.

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are obtained by Kakuda and Takeda (2006) when they evaluate Japan’s mergers and acquisitions within the
two-year period of 2002- 2003 as well as by Hanamura et al. (2011) who evaluate transactions that took place
between 2000 and 2007. Inoue and Kato (2006) attribute the differential wealth effects of these transactions in
the Japanese markets (compared to those of the US markets) to the friendly nature of such transactions inJapan and their hostile nature in the US.
Yeh (2013) examines the market’s reaction to the adoption of anti-takeover measures by 130 Japanese firms
between 2005 and 2007 and finds significant negative wealth effects. However, his findings show that, incontrast to the findings for the US market, the adoption of such measures affect neither the managerial
behavior nor the post-adoption performance of the firm.
Employing data from the 1998-2007 period, Nogata, Uchida and Goto (2011) compare stock price reactions ofregulated non-financial firms involved in mergers and acquisitions and with those of banks and unregulated
firms. They find that while unregulated firms and banks experience a significantly positive share priceresponse the regulated group does not. They also find that unregulated firms with stricter governancestructures experience a more favorable response.
Mehrotra, et al. (2011) focus on 91 mergers of Japanese firms during the 1998-2003 period and find thatmergers in Japan, unlike those in the US, tend to be countercyclical. They also find that in a significant portionof these mergers a main bank is the common link between the target and the bidder and that, when that is thecase, these mergers do not create wealth for the shareholders. Further, they report that both the acquiring andthe target firm experience positive pre-announcement returns but that these gains are reversed during the post
announcement-period. Additionally, Ushijima and Schaede (2014) investigate trades between Japanese firms of
their wholly- or partially-owned subsidiaries for the 1996-2010 period and find that subsidiary sales generate
positive abnormal returns for their buyers but negligible returns for their sellers. However, the seller realizes
significantly negative returns when the subsidiary subject to sale is in its core business.
Finally, and without being exhaustive, Higgins (2013) analyzes the wealth gains accruing to acquirers involved
in mergers during the 1990–2004 period and finds that they do not gain from their acquisitions. He also finds
that, when compared with firms with weak bank ties, acquirers with stronger bank ties experience a larger
wealth loss. However, these findings stand in contrast with the rest of the literature, including those of Kang et7

al., (2000), Schaik and Steenbeek (2004), Inoue and Kato (2006), Kakuda and Takeda (2006), Hanamura et al.,(2011), and Nogata, Uchida and Goto (2011) with regard to the wealth effect experienced by the acquiring firms.

3.

Data, Methodology, and Sample Characteristics

The primary sources of data utilized in this study are Thomson One Banker for details of mergers andacquisitions, Thomson Reuters Asset4 for environmental, social and governance (ESG) data, and Datastream forcompany data and returns analysis. To select our sample, we search Thomson One Banker for announcementsof all mergers and acquisitions involving a Japanese firm either as the bidder or as a target starting in January
2000 and ending December 2014. Using the announcement date from Thomson One Banker as the event date,
we utilize Eventus to calculate abnormal returns and the cumulative abnormal returns. We use the valueweighted index as the proxy for market return but also perform robustness checks utilizing the equallyweighted index.
Our initial sample is chosen to provide us with a basic understanding of the volume of M&A transactions
involving a Japanese firm. Figure 1 provides a visual presentation of the volume of this M&A activity.
According to these statistics, with 2,049 deals, the year 2007 witnessed the largest number of M&A activities
involving a Japanese firm as one the parties. However, the global financial crisis led to a slowdown in thesetransactions with the volume dropping to 1,480 deals in 2010. Since then, the M&A activity has regained its
momentum and reached 1,717 deals in 2014. Figure 1 also shows the numbers of terminated (or withdrawn)
deals for each of 15 years covered. The largest number of terminations (60) occurred during the depth of thefinancial crisis in 2008. The year 2011 witnessed the fewest number of terminated deals, both in absolute
numbers and as a fraction of announced deals.
Working with this population of deals, we next impose the dual requirements that (1) both the acquiring andthe acquired firm be publicly traded, and that (2) the total value of the announced deal be greater than (or equalto) $100 million. The resulting sample size is a total of 958 transactions. Table 1 reports the distribution ofthese deals over the 15-year period covered. According to these results, the Japanese market for corporate
control had its banner year in 2005 when 95 transactions each worth more than $100 million were announced.
The largest number of withdrawn deals took place in 2006 with six cancelled transactions. Table 1 also reports
the mean and median value of the transactions for each of the 15 years covered. While the annual median8

values of these deals are fairly stable (and fall within a fairly narrow range of $228 to $400 million), their meanvalues are larger and more spread-out (and fall in the $449-$1,406 million range).
Beyond these 958 deals, each worth $100 million or more, in which both parties are publicly traded, the 20002014 period also witnessed 430 deals in which the target was a non-publicly traded firm. Table 2 provides thesummary statistics for these deals. According to these results, with 50 acquisitions each year, 2012 and 2013
have been the two most active years for publicly traded Japanese firms to acquire privately held firms. As
would be expected, compared to acquisitions of publicly traded firms, these transactions are smaller in size
regardless of whether size is by mean or median transaction value. Further, similar to the results reported inTable 1, the annual median values of these transactions are more stable (ranging between $153m and $260m)
than are their mean values (ranging between $243m and $535m). However, because of the relative absence ofvery large-value outliers, mean and median values of these transactions are much closer to each other.
To arrive at our final sample of deals, we next impose the set of additional requirements that (1) the acquirer
holds less than 50% of the target shares before the announcement and that it secures majority control as aresult of the deal, that (2) the deal is completed (not cancelled or withdrawn at a later date) and that (3) the
acquirer’s ESG ratings be available in Asset4’s database. ASSET4 reports ESG ratings for more than 4600
firms worldwide. Utilizing more than 750 individual data points and more than 250 key performance indicators(KPIs) it classifies these data into ‘categories’ within the each of the four major ‘pillars’ of corporate governance,
economic, environmental and social. The corporate governance pillar consists of five categories: board functions,board structure, compensation policy, shareholders policy, and vision-and-strategy. The second pillar, economic,
has three categories of performance, client loyalty and shareholder loyalty. The environmental pillar iscomprised of the three categories of emission reduction, product innovation, and resource reduction. The lastpillar, social, is made up of seven categories: community, diversity, employment quality, health-and-safety,
human rights, product responsibility, and training-and-development. Utilizing the data underlying thesecategories, ASSET4 develops performance indicator scores that are then normalized and adjusted (for skewness
and the differential between the mean and the median) and fitted to a bell curve to derive ratings between 0
and 100 for each company. The resulting percentage is therefore a relative measure of performance, z-scoredand normalized to distinguish values and position the score between 0 and 100%.2 Each firm is ranked against

2

More specifically, each firm’s performance is calculated first as the average value of its indicators. These averages are then used to calculate
the average and the standard deviation of all company averages. The standard deviations are then used to center everything around zero.

9the four pillars designed to assess its performance on ‘Corporate Governance,’ ‘Economic’, ‘Environmental’ and‘Social’ dimensions as well as its overall ESG performance.
The first pillar (corporate governance) provides for an assessment of a firm’s systems and processes and isdesigned to indicate how well its board members and executives act in the interests of its long termshareholders. Accordingly, it can be used as a proxy to captures a company's capacity to direct and control its
rights and responsibilities to generate long term shareholder value through the creation of incentives and theappropriate sets of checks and balances. According to Asset4, the economic pillar is designed to measure thefirm’s capacity to generate sustainable growth and a high return on investment as well as efficient use of all its
resources. It can, therefore, be used as a proxy for a firm’s overall financial health and its ability to generate
long term shareholder value through implementation of best management practices.
The environmental pillar is designed to assess a firm’s impact on living and non-living natural systems,
including the air, land, water, and the complete ecosystems. It can, therefore, be used as an indicator of how
well the firm uses best management practices to avoid environmental risks and how responsible it is in its useof the natural system to generate long term shareholder value. The social pillar is designed to assess the firm’s
capacity to generate trust and loyalty with its workforce, customers and the society at large. As such, it can beused as a proxy for the firm’s reputation, the strength of its support foundation, and the health of its license tooperate. Finally, the equal-weighted scores are equally weighted assessments of company performance on thefour pillars.3 Therefore, the equal-weighted score can be used as a summary proxy for the firm’s performance inall four areas; economic, environmental, social and corporate governance.
Imposing the above three additional constraints, our final sample consists of 243 transactions. Table 3 reports
the summary statistics for this sample. Approximately six-tenth of these transactions are all-share deals, threetenth all-cash, and with the remainder are hybrids. Conglomerate-type mergers make up about 23% of thesetransactions, and about 60% are horizontal. Further, according to these results, at $1.07 billion, the meantransaction value for our sample is about three-times its median value and about ten times the book value of
assets acquired. The average premium paid for the control of these target firms is 20.4% (the premium paid ismeasured as the offer price compared to the target’s share price four weeks before the announcement of thedeal). These targets appear to be highly-levered as the average debt to equity ratio (total debt divided by book3

It should be noted again that these ratings are also z-scored and normalized to position the score between zero and 100%.

10value of equity) of targets is 1.66. Measured by the average equally-weighted ESG ranking, the typical acquirer
has a z-score of 48 and, as such, it can be argued that it has an ESG profile not much different than the averagefirm surveyed by ASSET4. The same can be said about the economic ranking of these acquirers where theaverage score is 51. With an average of 56, the social ranking of these firms is slightly above the mid-point for
all firms in the universe of ASSET4. Their environmental ranking is higher yet, averaging 65, indicating muchbetter performance than their global peers. However, with an average score of 14, the corporate governanceranking of these firms is significantly below the mid-point of their peers elsewhere. Combined, these rankings
paint a picture of these Japanese acquirers as a group of socially and environmentally responsible firms thathave relatively weak corporate governance structures but manage to produce par-level economic and overall
performance.
The summary statistics in Table 3 also show the annual breakdown of these mergers. With a total of 28, thelargest number of transactions included from any given year comes from the 2006 mergers. However, thelargest total dollar value of transactions included in our sample are those that represent the deals consummatedin 2007. The year 2002 contains the fewest number of deals (seven transactions) but 2010 represents thesmallest total dollar transaction value. Similar to the results reported in Table 1 for our initial sample of 958
deals, the final sample’s annual median values are smaller and fairly stable (within the $146 to $575 million
range) but the mean values are larger and more spread-out (in the $209-$2,453 million range). Interestingly,
the premium incorporated into the offer price (relative to target’s share price four weeks before) exhibits aconsiderable degree of variation between a low of 1.06 percent in 2001 to a high of 54 percent in 2010. Targets’
debt-to-equity ratios also register wide variations between a low of 0.45 times in 2014 and a high of 3.78 times
in 2002. There are also inter-year variations in ESG rankings of the acquirers. However, similar to the overall
averages, these annual averages are indicative of a profile of high social and environmental performance, poor
corporate governance, but average economic and overall performance.
4.

Empirical Results

Starting with the intermediate sample of 958 M&A announcements of Japanese firms acquiring publicly traded
Japanese firms, we evaluate the wealth effect of these events by computing the abnormal returns realized by
the shareholders of the acquiring firms. Panel A of Table 4 shows these results, indicating that shareholders of11

acquiring firms earn significantly positive abnormal returns at the announcement of these transactions.4
Indeed, positive abnormal returns in the magnitude of 0.44% are realized on the day of announcement followedby 1.13% the following day.5 Additionally, as shown in Panel B, shareholders of target firms fare better andrealize abnormal returns in excess of 3% on both the announcement date and the following day. Therefore, itappears that M&A activity in the Japanese markets produces significant gains for the shareholders of both theacquiring and the target firm. These results are in line with the findings of Kang et al., (2000), Schaik andSteenbeek (2004), Inoue and Kato (2006), Kakuda and Takeda (2006), Hanamura et al., (2011), and Nogata,
Uchida and Goto (2011). However, it appears that the magnitude of the gains for mergers of the first decadeand-a-half of the 21st century, when compared to those reported in these earlier studies, is somewhat different:
smaller gains for the shareholders of acquiring firms and larger ones for target shareholders. This may signalthat Japan’s market for corporate control may be losing some of its unique attributes and that its dynamics may
be converging with those of the US markets.
Analyzing the wealth effects of the withdrawal of M&A offers or the termination of proposed deals, we find thatboth the (would-have-been) acquiring firm shareholders and target shareholders experience a reversal of theirearlier gains. As reported in Panel C of Table 4, shareholders of acquiring firms experience a small but
statistically significant negative abnormal return on the day of offer withdrawal/termination. Further, as
results reported in Panel D indicate, target shareholders realize significantly negative abnormal returns on the
day after the announcement of withdrawal or termination.
We next analyze the wealth effects of announcements of acquisitions of non-listed Japanese firms by publicly
traded acquirers (i.e., those included in table 2). Results are reported in Panel E of Table 4. According to theseresults, acquisitions of unlisted firms lead to significant gains for the shareholders of acquiring firms. In termsof their magnitude, these gains appear to be similar in to those experienced by the shareholders of acquiringfirms when the target is a publicly traded firm. As such, these results are different than those reported by
Faccio, McConnell and Stolin (2006) who find that, when compared to the abnormal returns experienced by its
shareholders when the firm acquires a publicly traded firm, the acquirers of non-listed firms earn significantly
higher abnormal returns. Here, again, it can be argued that the evolution of Japanese market for corporate

4

The requirement of complete availability of returns data reduces our number of usable events from to 708 acquisitions involving traded target
firms and 28 non-traded targets.
5
Once the event window is widened to 11 days, starting with five days prior to and ending five days after the announcement, we observe thatshareholders of acquiring firms experience negative abnormal returns at t+3 and t+4. However, the 11-day cumulative abnormal returns is still
significant at 1.46%.

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control is responsible for the differences in results. A higher degree of competition among acquirers for assets
complementary to theirs in place has the expected effect of reducing the windfall to successful bidders,regardless of whether the bidder is publicly traded or otherwise.
4.1 Detailed Analysis

The major focus of our attention now shifts to an analysis of the short-term and longer-term wealth effects ofmergers and acquisitions as well as their social, environmental and governance effects. To this end weconcentrate on the 243 transactions of Table 4.6 The short-term wealth effects are summarized in Tables 5 and6, with the former reporting the abnormal returns realized by the acquiring shareholders and the latter thoseby the shareholders of target firms. According to these results, shareholders of acquiring firms experiencesignificantly positive abnormal returns on the day of and the day following the deal’s announcement. This holds
true regardless of whether we analyze the returns for all acquiring firms (Panel A) or only those for the nonfinancial acquirers (Panel B). As such, the cumulative abnormal returns over the three-day window of t-1 to t+1
are significantly positive, again irrespective of whether financial firm are included or not. However, in both thetotal sample and the non-financial subsample, a reversal of fortunes takes place two days after theannouncement with these shareholders experiencing significantly negative returns. The magnitude of thereversal is such that it erases the gains realized over the three-day window of t-1 to t+1. Consequently, whenanalyzed over the five-day window of t-5 to t+5, the cumulative abnormal returns are indistinguishable fromzero. Therefore, it can be concluded that mergers in Japan are not consequential events for the shareholders ofacquiring firms as they experience no significant wealth effects, positive or negative. These result, therefore,
stand in contrast with the conclusions of some earlier works (e.g., Kang et al., 2000, Schaik and Steenbeek, 2004,
Inoue and Kato, 2006, Kakuda and Takeda, 2006, Hanamura et al., 2011, and Nogata, Uchida and Goto, 2011)that the shareholders of Japanese acquirers experience significant abnormal returns. Given the more recent
data used in this study, it can be concluded that the comparative advantage of bidding firms has started todisappear as Japan’s markets for corporate control has evolved to become more competitive. In this respect,
today’s Japan’s market for corporate control behaves in a manner identical to the US and other Westernmarkets.

6Note, however, that the requirement of complete availability of all data items reduces the actual number of transactions to a total of 165.

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Insofar as the shareholders of target firms are concerned, results reported in Table 6 clearly establish that theyearn significantly positive abnormal returns. This holds true regardless of whether we focus on the returns
realized by the sample of all acquired firms (Panel A) or the subsample of non-financial firms (Panel B).
According to these results, significantly positive abnormal returns are earned on both the day of and the day
after the deal’s announcement. The three-day (t-1, t+1) cumulative abnormal returns to target shareholders
register at 8.09% for all acquired firms and 9.07% for the non-financial subsample, both highly significant. The
magnitude of these abnormal cumulative returns is even larger, 12.0% for all acquired firms and 13.95% for
non-financials, when we widen the event window to the 11-day period of t-5 to t+5. We note, however, that theratios of positive-to-negative abnormal returns suggest that a reversal of fortunes may be taking place startingon the second day after the event Although this indication of a reversal is supported by the Patel Z-statistics,
the average abnormal returns for all three days retain their positive signs. Therefore, it can be concluded thatin contrast to the experience of acquiring shareholders, acquired firms’ shareholders reap significant benefits
from these restructuring events.
4.2 Determinants of Abnormal Returns

We next set out to investigate which firm or deal-specific variables may explain variations observed in themagnitude of abnormal returns experienced by the shareholders of acquiring firms. To this end, we areparticularly interested in studying the possible role played by the acquiring firm’s commitment to ESG factors.
Our null hypothesis is that firms with a higher degree of commitment to ESG factors are positioned to appeal toa broader set of stakeholders and can, therefore, secure a more favorable set of merger terms. If so, we would
expect ESG factors to positively influence the magnitude of abnormal returns experienced by their shareholders.
We utilize the acquiring firm’s equally-weighted ESG score, as compiled and reported by Asset4, as a proxy forthe firm’s commitment to ESG factors.
Additionally, given that the existing literature has identified a number of company and deal-specific factors as
determinants of abnormal returns, we include the following set of factors as well: the acquiring firm’s size(proxied by the natural log of the firm’s total assets), the acquiring firm’s debt ratio (proxied by the ratio of bookvalue of total debt divided by the sum of market value of equity and book value of debt), acquiring firm’s Tobin’sq (proxied by the ratio of the firm’s excess market value, i.e, market value one week prior to the deal’s
announcement, net of its book value divided by its book value), target’s debt ratio (proxied by the ratio of bookvalue of total debt divided by the sum of market value of equity and book value of debt), target’s size (proxied by

14

the natural log of its total assets), and the merger’s relative size (poxied by target’s size divided by acquirer’ssize). We also include three dummy variables: the first one is designed to assume a value of 1 if the acquisition
is an all-cash deal, the second to signify if the merger is an all-share deal and the third to indicate if the merger
is a conglomerate-type acquisition. Finally, we also include year and industry fixed effects.
Results, as reported in Table 7 indicate that although the coefficient estimate of the ESG score has the expected
sign it is not statistically significant. Both the acquiring firm’s size and the target’s size exert negative
influences on the acquiring firm’s abnormal returns. However, neither one of the estimated coefficients is
statistically significant. The same holds true for target’s degree of financial leverage and the dummy variable
for all-cash deals. The estimated coefficients for all remaining variables are positive. However, the estimatedslope is statistically significant only for the deal’s relative size, which indicates that the larger the target
relative to the acquiring firm, the larger the payoffs to the shareholders of the acquiring firm. With an R-squareof 78%, the model has a highly significant explanatory model. However, most of the variation is attributed tocalendar year and industry effects.
4.3 Longer-Term Shareholders Benefits

Turning our attention to the question of longer-term wealth effect of mergers and acquisitions, we analyze thepattern of abnormal returns over the 60-month period following completion of the deal. Figure 2 provides avisual presentation of the monthly abnormal returns earned by the shareholders of acquiring firms for the fiveyear period that follows the merger. These results indicate that, insofar as these abnormal returns capture thelonger-term wealth experience of the surviving firm’s shareholders, in terms of their statistical significance,these mergers are inconsequential events. However, given a continuous pattern of decreases in the CAR, adifferent conclusion may be warranted when these events are evaluated in terms of their economic significance.
As Figure 2 shows, during the five-year period following the merger, monthly abnormal returns fluctuateconsiderably. However, no significant wealth creation or wealth destruction is evident. Cumulative abnormal
returns drift consistently in the negative territory approaching six percent by the end of the five-year window.
Therefore, it can be concluded that Japanese mergers and acquisitions do not produce significant long-term
benefits for the surviving firm’s shareholders.
4.4 Longer-Term Effects on Other Stakeholders

15

Finally, we turn out attention to the question of how these restructuring events affect the positions of otherstakeholders. Ideally, we would want to measure and quantify the impact of such activities of the wealth andwelfare of theses stakeholders such as the firm’s employees, its suppliers and customers, the broader
communities that the firm resides within and benefits from, the natural eco-system that it relies upon.
However, the absence of data on such impacts precludes direct analyses of the effects.7 In the meantime,
analyses of the firm’s ESG scores can provide for indirect evaluations of the effect of mergers and acquisitions
on the positions of other stakeholders.
Therefore, to assess the impact of mergers and acquisitions on the positions of other stakeholders, we evaluate
the surviving firm’s performance on economic, environmental, social, and governance factors during the fiveyear period that follows the restructuring event. To this end, we form an event-based portfolio for which t=0 is
the year in which the merger takes place. We then evaluate the pattern of changes in the firm’s performancestarting at t=0 through t=5. To account for changes that are industry-wide and unrelated to the event, we use
industry-adjusted scores by subtracting the average score for all firms operating in the same industry from thefirm’s raw score. Results are reported in Figures 3 through 7. Specifically, Figure 3 charts the pattern ofchanges in the surviving firms’ industry-adjusted economic performance for each of the five post-merger years.
Figures 4, 5 and 6 portray the sequence of changes in the firms’ performance on the environmental, social, andgovernance fronts and Figure 7 maps out the same for these firms’ overall performance as measured by theequally-weighted composite of the four factors.
According to these results, the typical acquiring firm’s economic performance (Figure 3) shows signs ofimprovement during the first three years that follow the merger. However, performance deteriorates during thefourth and fifth year in a manner that washes away the gains of the first three years. A similar pattern isobserved with regard to the firm’s environmental performance (Figure 4), with improvements during the firsttwo years and an erosion of those gains during the subsequent three years. The firm’s performance on the social
front (Figure 5) is somewhat different in that a slight improvement is observed only during the first of the postmerger years. However, a deteriorating pattern of performance starts in the second year and continues into thefifth year with the fifth-year performance noticeably inferior to its performance at the time of the merger. With
regard to governance (Figure 6), these firms’ performance remains largely unchanged over the course of the five
years that follow the merger with no changes for the first two years, a slight improvement during the third year
7

We can envision that future availability of detailed data may make such an inquiry more encompassing.

16

and a reversal of that gain during years four and five. Finally, on an overall basis (Figure 7), these firms show
an improvement during the first year, exhibit flat performance for the next two years and inferior performancein years four and five. This negative performance washes away all initial advantage and leaves them worse off
when compared to their performance at the time of merger.
Comparing the mean performance of these acquiring firms at the time of the merger to their performance five
years later, t-statistics indicate that these firms’ performance show no significant change on any of the fourpillars of performance (economic, t = -0.038, environmental, t = 1.46, social, t = -0.69, or governance t = 0.89).
The same is true with regard to the overall equally-weighted average of the four performance pillars (t = -0.38).
Accordingly, it can be concluded that these mergers fail to produce any significant improvements in thesurviving firm’s performance on any fronts, economic, environmental, social or governance. Combined with ourearlier results that these events fail to produce long-term value shareholder value, we can infer that executives
involved are the only beneficiaries of these transactions.
5.

Conclusions

This paper focuses on the dynamics of the market for corporate control in Japan. To that end, we analyze
mergers and acquisitions that take place within the Japanese market between January 2000 and December
2014. We first evaluate the short-term wealth effects of these corporate events from the perspectives ofshareholders of both the acquiring and the acquired firms. We find that the shareholders of Japanese acquiringfirms do not experience any significant wealth effects. On the other hand, our findings indicate that theacquired firms’ shareholders earn significant positive abnormal returns. These results stand in contrast to
some of the earlier results reported for the Japanese markets. Given the more recent data used in this study,
we conclude that Japan’s market for corporate control has become more competitive and now behaves in amanner similar to those of the US and other Western nations.
We also analyze the longer-term wealth effects of these acquisitions by studying the pattern of abnormal
returns earned by acquiring shareholders over a sixty-month period following the event. Our results indicatethat the shareholders of the surviving firm experience no significant abnormal long-term benefits during thefive years that follow the merger. The paper’s most significant contribution to the literature is a pioneering
analysis of the longer-term effects of mergers on the firm’s environmental, social and governance performance.
Results indicate that Japanese mergers produce no discernable improvements in the firm’s performance on any

17

of these fronts over the five-year period that follows the merger. An argument that can be forwarded is that in
the process of combining its operations with another firm, the acquiring firm increase its size and its power base.
It, therefore, improves its bargaining position vis-a-vis other stakeholders such as regulatory agencies, labor
unions or communities. Accordingly, it positions itself to extract more favorable terms from the otherstakeholders. Under such conditions, mergers do not necessarily result in improvements in environmental,social and governance performance of the post-acquisition surviving firm. Indeed, this improved bargaining
position, and its attendant benefits, may be a motivating factor for the so-called “activist” investors i.e., thoseseeking to enhance shareholder returns. Their tactic may amount to one of nudging the firm to increase its
scale and extract rents otherwise inaccessible. The best-expected outcome under such a scenario would be no
improvements in the firm’s performance on ESG factors. This is precisely what our findings point to.

18

Table 1. The frequency of mergers and acquisitions by Japanese acquirers of publicly traded targets with deal
values of $100 million or more, and the means and medians of transaction values for the years 2000 thru 2014.
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Numbers of Deals
Announced
50
46
64
84
50
95
83
76
75
68
48
56
64
52
47

Numbers of Deals
Terminated
1
1
0
1
2
4
6
4
3
3
1
0
1
2
1

Mean Transaction Value(millions of dollars)$1,378
$683
$513
$498
$1,406$1,353
$829
$449
$794
$781
$888
$831
$919
$688
$778

Median Transaction value(millions of dollars)
$343
$343
$261
$273
$256
$400
$321
$267
$299
$233
$249
$227
$288
$228
$262

19

Table 2. The frequency of mergers and acquisitions by Japanese acquirers of unlisted targets with deal values
of $100 million or more, and the means and medians of transaction values for the years 2000 thru 2014.

Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Numbers of Deals
Announced
27
9
11
21
19
33
27
38
31
26
25
37
50
50
26

Mean Transaction Value(millions of dollars)
445
535
321
352
543
444
243
433
268
378
242
330
349
243
461

Median Transaction value(millions of dollars)
241
276
217
190
236
229
160
191
189
260
155
201
153
213
211

20

Table 3. Summary statistics for mergers and acquisitions, between January 2000 and December 2014, made by Japanese acquirers of Japanese publiclytraded targets with deal values of $100 million or more where the acquirer holds less than 50% of the target shares before the announcement and securesmajority control as a result of the deal.
Year

Number ofTransactions

Numberof All
Cash
Deals

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
All

22
15
7
14
14
27
28
18
15
17
9
15
19
11
12
243

0
1
0
4
3
8
14
9
6
7
6
7
6
4
4
79

Numberof AllShares
Deals

20
10
4
8
8
14
13
9
9
10
3
8
13
7
7
143

Number ofConglomerate
Deals

Number of
Horizontal
deals

Mean
Transaction
Value

MedianTransaction
Value

Average
Target
Book
Value

4
3
1
0
7
8
9
4
6
4
3
3
1
0
2
55

18
9
4
11
5
12
13
9
9
11
5
9
16
8
7
146

2107
910
314
403
1015
2453
580
576
1037
1439
237
1579
547
209
464
1066

575
497
234
178
184
550
349
186
270
371
160
208
269
146
262
290

30429
25684
1460
2428
6059
32252
2366
2886
6546
20189
932
4395
2594
2852
4730
11675

Offer
Premium
Relativeto Share
Price
Four
weeks
Earlier
8.33%
1.36%
2.26%
14.81%
15.69%
15.80%
14.49%
15.11%
21.36%
27.43%
54.07%
30.05%
53.03%
16.52%
15.75%
20.40%

Target’s
Leverage
Ratio

EqualWeighted
ESG
Ranking

Corporate
GovernanceRanking

Economic
Ranking

Environmental
Ranking

Socialranking

1.06
3.07
3.78
2.11
0.66
1.90
1.99
1.63
3.21
1.33
1.01
0.92
1.26
0.58
0.45
1.66

54
49
45
51
38
36
50
53
38
59
58
43
42
68
56
49

17
16
20
12
13
10
13
17
11
18
9
10
17
12
15
14

49
65
46
55
40
38
53
58
41
60
70
51
46
76
56
54

75
55
59
68
53
52
69
64
57
78
79
67
57
91
76
67

65
61
49
61
48
46
58
59
51
64
64
53
50
70
59
57

21

Table 4. Abnormal returns associated with the announcements of Japanese mergers and acquisitions to theacquiring and target firm shareholders and the abnormal returns experienced by shareholders at theannouncement of withdrawal or termination of such deals during the 2000-2014 period. Panels A-D report theresults for acquisitions involving listed targets. Panel E reports the results for acquisitions of unlisted firms.
Day zero is the date on which a public announcement is made. All abnormal returns the equally weighted index
and market adjusted returns.

A. Announcement-Date
Returns to Acquiring Firms;
Listed Targets

B. Announcement-Date
Returns to Target Firms;
Listed Targets

C. Withdrawal-Date Returns
to Acquiring Firms: ListedTargets

D. Withdrawal-Date Returns
to Target Firms; ListedTargets

E. Announcement-Date
Returns to Acquiring Firms:
Unlisted Targets

Day

N

Positive:
Negative
365:356

Patel Z

708

Mean Abnormal
Return (%)
0.07

1.12

Generalized
Sign Z
1.39

-1
0

708

0.44

404:3175.65***

4.3***

+1

708

1.13

407:314

16.12***

4.52***

-1

708

0.38

349:359

4.41***

1.12

0

708

3.01

435:273

36.79***

7.59***

+1

708

3.08

432:27646.26***

7.37***

-1

28

-0.04

17:13

0.48

0.62

0

28

-0.01

17:13

-3.55***

0.62

+1

28

-0.05

14:16

0.55

-0.48

-1

28

-0.01

14:14

0.22

-0.14

0

28

-0.34

12:16

-1.63

-0.9

+1

28

-2.88

9:19

-5.99***-2.03*

-1

424

0.23

210:214

3.69***

1.24

0

424

0.67

212:212

5.57***

1.43

+1

424

0.50

212:2125.32***

1.43

The symbols *, **, and *** denote statistical significance at 0.05, 0.01, and 0.001 levels using a generic one-tail test.

22

Table 5. Abnormal returns to the shareholders of acquiring firms associated with the announcements ofmergers and acquisitions during the 2000-2014 period. Day zero is the date on which a public announcement ismade. All abnormal returns are calculated using the equally weighted index and market adjusted returns.

A.

All Acquiring Firms (N=165)
Day

-5
-4
-3
-2
-1
0
+1
+2
+3
+4
+5
Cumulative(-1,+1)
Cumulative(-5,+5)B.

Mean Abnormal
Return (%)
0.10
0.15
0.11
-0.23
-0.03
0.61
0.97
-0.53
-0.16
-0.60
-0.06
1.55

Positive:
Negative
77:88
82:83
83:82
75:90
77:88
94:71
88:77
64:101
71:94
66:99
81:84
95:60

Patel Z
-0.1162.193
0.081-0.980-0.152
3.588***
5.423***-2.952**-0.432-4.062***
1.218
5.114***

Generalized Sign
Z
-0.5650.353-0.106-0.871-0.5651.731*
0.812-2.707**-1.330-2.905*-0.2592.649**

0.33

84:81

1.148

0.812

Positive:
Negative
62:79
66:75
64:77
65:76
67:81
75:66
77:64
65:76
69:72
62:79
71:70
81:60

Patel Z

Generalized Sign
Z
-0.844-0.186-0.679-0.515-0.6791.295
0.637-2.818***-1.008-1.502-0.0212.282*

Non-Financial Acquiring Firms (N=141)
Day

Mean Abnormal
Return (%)
0.02
-0.01
0.10
-0.17
-0.12
0.64
1.08
-0.68
-0.08
-0.54
-0.06
1.60

-5
-0.258-41.249-3-0.144-2-0.462-1-0.67003.712***+1
5.703***+2-3.544***
+3
0.003
+4
-3.722***+5
1.341
Cumulative
5.049***(-1,+1)
Cumulative
0.190
78:63
0.968
0.966
(-5,+5)The symbols *, **, and *** denote statistical significance at 0.05, 0.01, and 0.001 levels using a generic one-tail
test.

23

Table 6. Abnormal returns to the shareholders of target firms associated with the announcements of mergers
and acquisitions during the 2000-2014 period. Day zero is the date on which a public announcement is made.
All abnormal returns are calculated using the equally weighted index and market adjusted returns.

A.

All Target Firms (N=165)
Day

-5
-4
-3
-2
-1
0
+1
+2
+3
+4
+5
Cumulative(-1,+1)
Cumulative(-5,+5)B.

Mean Abnormal
Return (%)
-0.04
0.19
0.13
0.15
0.28
3.12
5.10
2.15
0.82
0.40
-0.28
8.09

Positive:
Negative
80:85
83:82
86:79
77:88
84:81
105:60111:54
75:90
76:89
73:92
72:93
127:38Patel Z
0.388
2.030
1.341
2.236
0.829
23.799***44.908***15.97***
7.568***
4.825***-0.59438.379***Generalized Sign
Z
-0.0220.445
0.912-0.4900.601
3.872***
4.806***-0.801-0.645
1.113-1.2687.620***

12.02

125:4031.146***6.208***

Positive:
Negative
69:72
69:72
74:67
62:79
67:74
95:46
94:47
62:79
65:76
63:78
62:79
110:31Patel Z

Generalized Sign
Z
0.072
0.072
0.915
-1.107-0.2654.453***
4.285***-1.107-0.602-0.939-1.107
7.222***

Non-Financial Target Firms (N=141)
Day

Mean Abnormal
Return (%)
0.08
-0.02
0.15
0.10
0.13
3.57
5.57
2.49
1.01
0.54
-0.25
9.07

-5
0.996
-4
0.839
-3
1.326
-2
2.366
-1
0.270
0
25.848***+147.553***+2
17.388***+3
8.202***+4
5.148***+5-0.465
Cumulative
41.009***(-1,+1)
Cumulative
13.95
109:3231.837***7.418***(-5,+5)The symbols *, **, and *** denote statistical significance at 0.05, 0.01, and 0.001 levels using a generic one-tail
test.

24

Table 7. Regression of acquiring firm cumulative abnormal returns on explanatory variables. The abnormal
returns are those accruing to the shareholders of acquiring firms over the three-day window of t-1 to t+1. The
explanatory variables consist of the acquiring firm’s ESG score, proxied by the firm’s equal-weighted ESG score
as reported by Asset4, the acquiring firm’s size, proxied by the natural log of the firm’s total assets, theacquiring firm’s debt ratio, proxied by the ratio of book value of total debt divided by the sum of market value ofequity and book value of debt, acquiring firm’s Tobin’s q, proxied by the ratio of the firm’s excess market value(market value one week prior to the deal’s announcement), net of its book value divided by its book value,
target’s debt ratio, proxied by the ratio of book value of total debt divided by the sum of market value of equity
and book value of debt, target’s size, proxied by the natural log of its total assets, the relative size of theacquisition, poxied by target’s size divided by acquirer’s size, a dummy variable assuming a value of 1 if theacquisition is an all-cash deal, a dummy variable signifying if it is an all-share deal and a dummy variableindicating if the merger is a conglomerate-type acquisition. Year and industry fixed effects are also included.
Variable
Constant
Acquirer’s ESG score
Acquirer’s size
Acquirer’s debt ratio
Acquirer’s Tobin’s q
Target’s debt ratio
Target’s size
Relative size of theacquisition
All-cash deal dummyAll-share deal dummy
Diversifying merger
dummy
Industry fixed effects
Year fixed effects

Parameter Estimate
0.113310.00009-0.00694
3.242890.00004-0.02946-0.00520
0.07284

Standard Error
0.099340.000190.006093.606440.00004
0.02446
0.00583
0.03248t-Statistic
1.14
0.46
-1.14
0.9
1.15
-1.2
-0.89
2.24

-0.01878
0.00388
0.000280.01861
0.01667
0.01217

-1.01
0.23
0.02

Yes
Yes

25

Figure 1. The frequency of Mergers and Acquisitions involving a publicly-held Japanese firm either as an acquirer or a target between 2000 and 2014

1500

19

13
7

14

14

18

28

60

2000

12

28

2500

1493

1571

1590

2011

2012

2013

1705

1466
2010

1636

1754

2021

1631

1456

Completed Deals

929

876
2002

748

970
2001

436

500

9

9

9

1000

9

14

Terminated Deals

2014

2009

2008

2007

2006

2005

2004

2003

2000

0

26

Figure 2. Average abnormal returns and cumulative abnormal returns experienced by the shareholders of acquiring firms over the 60-month period
following the merger. Results correspond to returns on an event-based portfolio consisting of the shares of all acquiring firms in which t=0 is defined as themerger date. Abnormal returns are calculated using the equally weighted index and market adjusted returns. The horizontal axis records the number ofmonths after the merger and the vertical axis records the returns.

27

Figure 3. Economic performance of Japanese acquiring firms during the five-year periodthat follows the merger. Performance is measured by adjusting each firm’s Asset4 score by
the industry average that excludes the firm.

Acquiring Firms' Economic Performance
14
12
10
8
6
4
2
0
t+0

t+1

t+2

t+3

t+4

t+5

Figure 4. Environmental performance of Japanese acquiring firms during the five-year
period that follows the merger. Performance is measured by adjusting each firm’s Asset4
score by the industry average that excludes the firm.

Acquiring Firms' Environmental Performance
7
6
5
4
3
2
1
0
t+0

t+1

t+2

t+3

t+4

t+5

28

Figure 5. Social performance of Japanese acquiring firms during the five-year period that
follows the merger. Performance is measured by adjusting each firm’s Asset4 score by theindustry average that excludes the firm.

Acquiring Firms' Social Performance
16
14
12
10
8
6
4
2
0
t+0

t+1

t+2

t+3

t+4

t+5

Figure 6. Governance performance of Japanese acquiring firms during the five-year periodthat follows the merger. Performance is measured by adjusting each firm’s Asset4 score by
the industry average that excludes the firm.

Acquiring Firms' Governance Performance
7
6
5
4
3
2
1
0
t+0

t+1

t+2

t+3

t+4

t+5

29

Figure 7. Overall performance of Japanese acquiring firms during the five-year period that
follows the merger. Performance is measured by adjusting each firm’s Asset4 score by theindustry average that excludes the firm.

Acquiring Firms' Overall Performance
14
12
10
8
6
4
2
0
t+0

t+1

t+2

t+3

t+4

t+5

30

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