The extended recession of the 1990's and recent financial deregulation has resulted in a dramatic increase in the degree of mergers and acquisitions activity in Japan. In fact, the number of domestic mergers and acquisitions of public and private companies has increased from 268 in 1990 to 1354 in 2002. An interesting question is whether these mergers can reasonably be expected to lead to improvements in the performance of the companies involved. To shed some light on the issue, this paper examines the long-term operating performance following 56 mergers of manufacturing firms traded on the Tokyo Stock Exchange in the period 1969 to 1997. We find slight evidence of improvements in operating performance for the entire sample. Moreover, the long-term performance is significantly greater following mergers of firms operating in different industries and that pre-merger and post-merger performance is highly correlated. This superior performance is especially marked among diversifying firms that acquire their sales affiliates. Finally, rescue mergers involving distressed targets are not likely to lead to inferior long-term performance.
(c) 2001-2003 Kazunori Suzuki, Timothy Kruse, Kwangwoo Park and Hun Park