Results of examining the relation between market reactions and performance changes

303 focus on mergers conducted during 2000 to 2004 panel B, we find evidence to support negative relation between cumulative abnormal return and ROE. A possible explanation for this result is that more than 3 years will be needed for financial performance to improve after merger. [Table 4.4 about here]

5. Conclusion

The purpose of this paper is to investigate whether the economic effects of merger have changed. By comparing the stock price reaction and financial performance of 73 merger cases conducted from 1986 to1999 and 72 merger cases conducted from 2000 to 2004, we investigate whether the effects of merger have changed between the two periods. We also try to investigating the relation between stock price reaction at merger announcement and post merger financial performance. Our main findings are summarized as follows. First, contrary to positive cumulative abnormal returns for both acquiring and target firms during 2000 to 2004, cumulative abnormal returns for acquiring and target firms during 1984 to 1999 were at best zero or negative. Second, we did not find evidence to support that mergers conducted during 1986 to 1999 caused any effect on financial performance. However, mergers conducted during 2000 to 2004 caused negative impact on ROE and sales growth rate. Third, we did not find evidence to support any specific relation between market reaction and financial performance changes during the 1986 to 1999 period. On the other hand, when we focus on mergers conducted during 2000 to 2004, we find evidence to support negative relation between cumulative abnormal return and ROE. A possible explanation for this result might be that more than 3 years will be needed for financial performance to improve after merger or financial performance did not improve as marked expected. 304 References Andrade, G., M . Mitchell, and E. Stafford, 2001.New Evidence and Perspectives on Mergers, Journal of Economic Perspectives 152, 103-120. Asquith, P. 1983, Merger Bids, Uncertainty, and Stockholder Return, Journal of Financial Economics 11,51-84. Cornett, M. and H. Tehranian, 1992. Change in corporate performance associated with bank acquisitions. Journal of Financial Economics 31, 211-234. Healy, P. M., K. G. Palepu and S. Ruback, 1992. Does Corporate Perfomance Improve after Mergers, Journal of Financial Economics 312, 135-175. Herman, E. and L.Lowenstein. 1988. The Efficiency Effect of Hostile Takeovers, in J. C. Coffee, Jr.; L. Lowenstein; and S. Rose-Ackerman; eds., Knights, Raiders, and Targets: The Impact of the Hostile Takeover 211-240. Oxford University Press, New York, NY . Inoue, K. 2002. Nihon no MA ni okeru torihikikeitai to kabuki kouka Stock reaction to MA announcement and form of transaction. Keieizaimukenkyu 22 2, 107-120 in Japanese. Jensen, M.C.and R. S. Ruback, 1983. The Market for Corporate Control: The Scientific Evidence, Journal of Financial Economics 11,5-11. Muramatsu, S. 1986, Zaimu deta niyoru gappei kouka no bunseki An analysis on effects of merger using financial data. Kigyoukaikei 38, 60-69 in Japanese. Odagiri, H.and T. Hase, 1989. Are Mergers and Acquisitions going to be popular in Japan too? International Journal of Industrial Organization 7, 49-72. Pettway, R. H. and T. Yamada, 1986. Mergers in Japan and Their Impact upon Stockholders ‘ Wealth, Financial Management 15, 43-52. Ravenscraft, D. J. and F. M. Scherer, The Profitability of Mergers, International Journal of Industrial Organization 71, 101-116. Smith, A. 1990, Corporate Ownership Structure and Perfomance: The Case of management buyouts, Journal of Financial Economics 27,143-164. Usui, A. 2001, Kabunushikachi to MA Shareholder value and MA, in Usui, A; eds., Value keiei to MA toushi Value Accounting and MA Investment. Chuo Keizaisha, Tokyo in Japanese.