Does Japanese Business Group Membership Improve Post-Merger Performance?

This study examines whether merger performance is different between member companies of a Japanese business group (keiretsu) and independent companies. The six largest keiretsu groups with a long history are the focus (Mitsubishi, Mitsui, Sumitomo, Fuyo, Sanwa, and Daiichi Kangyo). Using data on mergers between Japanese-listed companies for 1985–2014, this study investigates the role of keiretsu groups on post-merger performance including company stock price, number of employees, and research and development. The event study shows that the stock prices of acquirers react less positively to announcements for within-group mergers than for mergers between independent firms. In addition, acquirers of within-group mergers tend to increase the number of employees and average annual salary but decrease the ratio of research and development after mergers. Such reduced ratio of research and development is not observed for acquirers of other types of mergers. In addition, the targets of within-group mergers tend to have higher leverage than other targets. Our results indicate that within-group mergers do not seem to aim at enhancing economic performance of acquirers but rather at rescuing troubled targets and are, thus, perceived unfavorably by market participants.