Bidder and target valuation and method of payment of M&AS in Japan: Evidence against the misvaluation-driven transactions

Shinya Hanamura, Kotaro Inoue, Kazunori Suzuki

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

We analyze 377 takeovers that occurred in Japan between 2000 and 2007. Our focus is on the choice of payment method between cash and shares, the bidding premium, the market valuation of a bidder and a target, and the share price reaction. We relate the findings to the two complimentary theories of takeover motives; the Q-theory and the misvaluation theory. We have found that in Japan cash offers tend to occur when an acquirer and a target are highly valued on B/P basis, and when target's size in terms of market cap. is larger relative to bidder's size. The bidding premium tends to be higher when a bidder's valuation is higher, when a target's valuation is lower, and when target's market cap. is smaller relative to bidder's market cap. The choice of payment method (cash or stock) does not affect the bidding premium. Buyer's CARs are higher when target's market cap. is larger relative to bidder's market cap. Target's CARs are higher when a bidder's valuation is higher, when a target's valuation is lower, and when cash is used to pay for a takeover. Japanese takeover market was very small before the late 1990s and then quickly expanded in the 21st century, so that we are among the first to explore it. Our findings under the recent merger wave in Japan are in contrast with Dong et al. (2006), and are consistent with the Q-theory. We believe that the Japanese management has so far conducted a takeover based on managerial and strategic objectives. Our results also provide an explanation for the finding of Kang et al. (2000) and others who report that that on average a takeover announcement in Japan is greeted with positive share price reaction of both a bidder and a target.

Original languageEnglish
Pages (from-to)406-416
Number of pages11
JournalCorporate Ownership and Control
Volume8
Issue number3 D
DOIs
Publication statusPublished - 2011

Keywords

  • Merger wave
  • Misvaluation hypothesis
  • Stock-to-stock acquisitions
  • Takeovers
  • Tender offer bid

ASJC Scopus subject areas

  • Business, Management and Accounting(all)

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