The Japanese Market for Corporate Control and Managerial Incentives
Posted: 13 Jul 1998
Date Written: November 1995
We examine bidder returns in Japanese mergers from 1976 to 1990. Using a comprehensive sample of 104 Japanese bidders, we find that shareholders of Japanese bidders experience a significant positive abnormal return of 1.41%. Bidder returns are higher when firms acquire targets in the same industry, when their managers performed well before the merger, and when their managers acquire relatively large targets. We also find that bidder returns increase with the bidder's leverage and the bidder's ties to financial institutions through borrowings. Our evidence is consistent with the view that managerial incentives affect a firm's investment decisions and therefore firm value, and that these incentives are affected by the internal governance mechanisms that control managerial discretion.
JEL Classification: G34
Suggested Citation: Suggested Citation