Do Cross-Border Acquisitions Create More Shareholder Value than Domestic Deals for Firms in a Mature Economy? The Japanese Case

Abstract

We empirically analyze the characteristic differences and shareholder wealth effect in domestic and cross-border acquisitions involving Japanese acquiring firms over the period from 2000 to 2010. During this period, the Japanese economy had reached a mature economic state, and there was a strong trend for Japanese firms to shift production to foreign sites, and also to target foreign markets to enhance growth. The results of our study reveal that cross-border acquisitions create larger returns for the acquirers’ shareholders than domestic deals. Furthermore, in the last three years of our analysis period, which corresponds to the period of slow economic growth in G7 countries due to the economic crisis in the US and EU, acquisitions involving target firms in emerging markets created greater wealth gains for shareholders than deals targeted firms in G7 countries. This suggests that within the context of a mature economy, cross-border acquisitions can be considered a prime investment option for value creation. The importance of M&A in emerging markets is increasing for Japan and other advanced industrial economics.