THE JAPANESE MARKET FOR CORPORATE CONTROL AND MANAGERIAL INCENTIVES

We examine bidder returns in Japanese mergers and find that shareholders of bidders experience a significant positive announcement return. 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. Unlike non-keiretsu firms, returns to keiretsu firms are higher when they acquire firms operating in different industries. 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 firm value.