Has the threat of a takeover improved the management of target firms? An analysis of firms in which M&A consulting, Japan's first hostile bidder, acquired stakes

This paper examines the new development of hostile takeovers and shareholder activism in Japan. The hostile bidders claim that the threat of takeover which they pose on the management of a poorly managed company is not only to their benefit, but also to that of the target company in general, because the management will run the company better to maximize its value. Nearly a decade having passed since the first-ever hostile TOB attempt in Japan by M&A Consulting (MAC), an investment fund led by Mr. Yoshihiro Murakami in January 2000, we examine the stock price and operating performance of the companies whose shares were bought by the MAC. We find that the shareholders of the target companies indeed enjoyed large positive abnormal returns in the two years following the news. We report, however, that their operating performance declined over the four fiscal years following such news. There is little evidence so far that the threat of a hostile takeover improved the actual operating performance of the target firm.