The Legal Systems and Takeover Returns: the Case of Japanese Cross-border Acquisitions in Europe

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  • 日本企業の欧州での企業買収効果と買収先の法制度との関係について
  • ニホン キギョウ ノ オウシュウ デ ノ キギョウ バイシュウ コウカ ト バイシュウサキ ノ ホウセイド ト ノ カンケイ ニ ツイテ

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Abstract

This study investigates Japanese cross-border acquisitions in Europe during 1991-2003, exploring the following two questions: what is the effect of the cross-border acquisitions on the acquirers' shareholder wealth; and how do the differences in the legal systems of the host countries affect the cross-border returns. Cross-border returns may be expected to be higher if the acquirer can apply its superior competency to the foreign market and realize higher level of scale economies. Conversely, cross-border returns may be lower due to greater costs arising from the differences in culture, language, politics and accounting. The empirical results show that the 3-day CAR around the announcement was averaged at 0.33%, statistically insignificant. On average, the Japanese cross-border acquisitions in Europe fail to achieve higher benefits relative to the costs Regarding the effects of law, the empirical study shows that (1) cross-border returns are lower and negative in countries where shareholder protection is stronger, spending on auditing is higher, or administrative regulations are stricter; (2) buyout price is relatively higher in countries where shareholder protection is stronger; (3) however, higher buyout price does not result in lower returns. In fact, common law countries are associated with stronger shareholder protection, higher spending on auditing, and stiffer administrative regulations. From the empirical results, it can be argued that the negative CAR is a response to the higher costs to be incurred by these stricter rules in the wake of the acquisitions. On the other hand, CAR is higher in civil law countries where these post-acquisition costs are expected to be lower. A caution is needed when applying this study's results to other geographical areas, since this study only contains cross-border acquisitions in Europe in order to control for the noises caused by geographical variances.

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