Kotaro Inoue - Academia.edu (original) (raw)
Papers by Kotaro Inoue
Energy Policy, 2017
In the early 1990s, the United Kingdom (the UK) initiated widespread reforms in the electricity i... more In the early 1990s, the United Kingdom (the UK) initiated widespread reforms in the electricity industry through a series of market liberalization policies. Several other countries have subsequently followed the lead and restructured their electricity industry. A major outcome of the deregulation effort is the spate of takeovers, both domestic and global, by electric utility companies. With the entry of new players and increasing competition, the business environment of the electricity industry has changed dramatically. This study analyzes the economic impact of mergers and acquisitions (M & As) in the electric utility industry after deregulation. We have examined acquisitions that took place between 1998 and 2013 in the United States, Canada, the UK, Germany, and France. Although previous studies showed no evidence of a positive effect on acquiring firms through M & As, we find that acquisitions by electric utility companies increased the acquiring firms' share value and improved their operating performance, primarily through efficiency gains after the deregulation. These results are consistent with the empirical evidence and implications presented by Andrade et al. (2001) that M & A created value for the shareholders of the acquiring and target combined firms.
Corporate governance: Search for the advanced practices, 2019
This study investigates if stewardship code enhances monitoring activities of institutional inves... more This study investigates if stewardship code enhances monitoring activities of institutional investors on their portfolio firms. Stewardship Codes aim to enhance the quality of engagement between institutional investors and companies. Since institutional investors who typically hold diversified portfolio should have little incentive to monitor their portfolio firms due to free-rider problem, the stewardship code, which is designed to motivate institutional investors to monitor, becomes important in countries with high institutional ownership
The influence of managerial attitudes on corporate finance has become a topic of great interest. ... more The influence of managerial attitudes on corporate finance has become a topic of great interest. For example, Malmendier and Tate (2008) show that overconfident managers are more likely to conduct acquisitions. This research explores the impact of national business cultures on cross-border acquisitions. Business cultures can influence the ways managers cope with uncertainty and their subsequent business decisions, as was described in seminal research by Hofstede (1991). By their very nature, cross-border acquisitions require that managers deal with different cultures and higher levels of uncertainty. We seek to understand how business cultures affect value in cross-border acquisitions using data from the Asia-Pacific Rim region over the period 2000-2009. The countries in this region have large cultural differences, and the potential gains from acquisitions are very substantial, so these data are an excellent population for analysis. Our results show that different business cultures ...
AbstractThe following sections are included:IntroductionThe State of the M&A Market in JapanDo M&... more AbstractThe following sections are included:IntroductionThe State of the M&A Market in JapanDo M&As in Japan Increase Shareholder Value?Factors Behind the Value Creation by M&A ActivitiesLong-Term Shareholders' Return after M&As in JapanConclusionAcknowledgmentReferences
SSRN Electronic Journal
This study examines whether the sustained lower profitability and market valuation of Japanese fi... more This study examines whether the sustained lower profitability and market valuation of Japanese firms compared to global peer firms can be explained by the structure of insider dominate board of directors and the employment system which hinders flexible employment adjustments by using crosscountry data. Firstly we show that level of outside director ratio and flexibility of employment adjustment both differ consistently across 27 countries in the analyzed period. We show that these two factors significantly explain observed variation of financial performance across countries significantly. In addition, we show that not only do these two factors have significant explanation power over the relatively poor performance of Japanese firms, but also over the better financial performance and growth rate of US firms.
Japan and the World Economy
This is an empirical investigation of the degree to which legal rules impact the welfare of minor... more This is an empirical investigation of the degree to which legal rules impact the welfare of minority shareholders in acquisitions. While an efficient market for corporate control is vital for an economy's growth and development, insufficient legal standards may permit coercive takeovers that have negative implications for capital markets. This research focuses on tender offers in Japan, where legal rules provide acquirers with the opportunity to make coercive takeovers that expropriate minority shareholder wealth. Japan's legal system changed in 2006 to introduce cash mergers to freeze-out remaining shareholders after successful takeovers, and in 2007 to require bidders making tender offers that seek more than twothirds of the voting securities of a target to offer to buy all the shares. However, acquirers with the stated aim of securing less than two-thirds of voting securities have no such obligation. We find evidence that these acquirers tend to make coercive two-tier offers that expropriate the interests of minority shareowners. Our results suggest that avoiding coercive takeovers requires that laws force acquirers to provide full information concerning the clean-up merger conditions as well as to pay an equivalent amount in the clean-up to minority shareowners as was offered in the initial tender offer without ambiguity. These conclusions have relevance for all countries that have not fully considered the appropriate level of protection for minority shareholders.
SSRN Electronic Journal
We analyse domestic and cross-border acquisitions by Japanese firms who face a mature economy wit... more We analyse domestic and cross-border acquisitions by Japanese firms who face a mature economy with limited growth opportunities and clarify the differences regarding how equity markets evaluate these transactions. In the analysed period, Japanese firms acquire firms not only in developed countries such as the U.S. and the EU but also in developing countries such as China, Hong Kong, India and other East Asian countries.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-r... more NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Hitotsubashi journal of commerce and …, 2008
During the internet bubble in the U.S., there were several instances that the market value of a p... more During the internet bubble in the U.S., there were several instances that the market value of a parent firm was less than the market value of its holdings of a publicly traded subsidiary. This parent company puzzle is also observed in Japan. The objective of this paper is to investigate whether this puzzle represents mispricing by the stock market, and, if so, to investigate why the observed mispricing persisted for a long period of time. The results are inconsistent with market efficiency. Because of market frictions, there is no guarantee that distortions in stock prices will always be quickly corrected by arbitrage transactions. Surprisingly, even highly liquid stocks listed on the First Section of the Tokyo Stock Exchange (TSE) can deviate substantially from fundamental values for a long period of time. We suggest these large and persistent price distortions could be attributable to the lack of active arbitrage activity in Japan due to market frictions.
Pacific-Basin Finance Journal, 2010
ABSTRACT Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, ... more ABSTRACT Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in "evergreening". Inoue et al. (2008) also showed that, compared to out-of-court settlements in the United States, agreements on out-of-court restructuring are attained more easily in Japan. However, widespread forbearance by banks and affiliated companies in addressing the needs of distressed firms indicated a serious weakness of banks and affiliated companies in instituting discipline. This is the first empirical study to examine the performance of Japanese firms that experienced out-of-court restructuring in Japan from January 1990, when the bubble economy burst, to March 2005, when the Koizumi Cabinet declared the bad debt problems of major firms to be resolved. Our results show that important biases permitted deeply unprofitable firms to survive in Japan. This finding is similar to research by Hotchkiss (1995), who analyzed post-restructuring performance in the United States. We also find that out-of-court restructurings of troubled firms in Japan were less effective in improving profitability than restructurings under Chapter 11 in the United States. However, we find that restructurings associated with new capital injections and new outside management are more likely to lead to genuine improvement in financial performance.
Journal of Banking & Finance, 2008
This is the first comprehensive study to empirically analyze the economics of private (out-of-cou... more This is the first comprehensive study to empirically analyze the economics of private (out-of-court) debt restructurings of financially distressed Japanese companies spanning the period from the burst of the bubble economy of Japan in 1990 to the time when the excessive bad debt problems of major firms were recognized as resolved in March 2005 on the basis of the stock prices of more than 200 restructurings. In Japan the mechanism of corporate monitoring is not market based (shareholder and public bondholder based) but large-investor based (large stakeholder based)-typically, banks and affiliated companies. These stakeholders are expected to efficiently resolve potential bankruptcy or collapse with better information resulting from their long-term relationship with the distressed firms. In contrast, however, this study finds that out-of-court restructurings led by banks or affiliated companies failed to gain the trust of the market because of their procrastinations in implementing fundamental solutions; and therefore, there is a need for third-party monitoring. Compared to the analysis of out-of-court settlements in the United States by Gilson et al. (1990), this study finds that agreements on out-of-court restructuring in Japan are attained more easily than in the United States. However, without third-party mediation, no fundamental changes can be expected from the restructurings. This forbearance by banks and affiliated companies in addressing the needs of distressed firms indicates the weakness of banks and affiliated companies in instituting discipline among themselves, thereby showing the importance of instituting a system to "monitor the monitor".
Energy Policy, 2017
In the early 1990s, the United Kingdom (the UK) initiated widespread reforms in the electricity i... more In the early 1990s, the United Kingdom (the UK) initiated widespread reforms in the electricity industry through a series of market liberalization policies. Several other countries have subsequently followed the lead and restructured their electricity industry. A major outcome of the deregulation effort is the spate of takeovers, both domestic and global, by electric utility companies. With the entry of new players and increasing competition, the business environment of the electricity industry has changed dramatically. This study analyzes the economic impact of mergers and acquisitions (M & As) in the electric utility industry after deregulation. We have examined acquisitions that took place between 1998 and 2013 in the United States, Canada, the UK, Germany, and France. Although previous studies showed no evidence of a positive effect on acquiring firms through M & As, we find that acquisitions by electric utility companies increased the acquiring firms' share value and improved their operating performance, primarily through efficiency gains after the deregulation. These results are consistent with the empirical evidence and implications presented by Andrade et al. (2001) that M & A created value for the shareholders of the acquiring and target combined firms.
Corporate governance: Search for the advanced practices, 2019
This study investigates if stewardship code enhances monitoring activities of institutional inves... more This study investigates if stewardship code enhances monitoring activities of institutional investors on their portfolio firms. Stewardship Codes aim to enhance the quality of engagement between institutional investors and companies. Since institutional investors who typically hold diversified portfolio should have little incentive to monitor their portfolio firms due to free-rider problem, the stewardship code, which is designed to motivate institutional investors to monitor, becomes important in countries with high institutional ownership
The influence of managerial attitudes on corporate finance has become a topic of great interest. ... more The influence of managerial attitudes on corporate finance has become a topic of great interest. For example, Malmendier and Tate (2008) show that overconfident managers are more likely to conduct acquisitions. This research explores the impact of national business cultures on cross-border acquisitions. Business cultures can influence the ways managers cope with uncertainty and their subsequent business decisions, as was described in seminal research by Hofstede (1991). By their very nature, cross-border acquisitions require that managers deal with different cultures and higher levels of uncertainty. We seek to understand how business cultures affect value in cross-border acquisitions using data from the Asia-Pacific Rim region over the period 2000-2009. The countries in this region have large cultural differences, and the potential gains from acquisitions are very substantial, so these data are an excellent population for analysis. Our results show that different business cultures ...
AbstractThe following sections are included:IntroductionThe State of the M&A Market in JapanDo M&... more AbstractThe following sections are included:IntroductionThe State of the M&A Market in JapanDo M&As in Japan Increase Shareholder Value?Factors Behind the Value Creation by M&A ActivitiesLong-Term Shareholders' Return after M&As in JapanConclusionAcknowledgmentReferences
SSRN Electronic Journal
This study examines whether the sustained lower profitability and market valuation of Japanese fi... more This study examines whether the sustained lower profitability and market valuation of Japanese firms compared to global peer firms can be explained by the structure of insider dominate board of directors and the employment system which hinders flexible employment adjustments by using crosscountry data. Firstly we show that level of outside director ratio and flexibility of employment adjustment both differ consistently across 27 countries in the analyzed period. We show that these two factors significantly explain observed variation of financial performance across countries significantly. In addition, we show that not only do these two factors have significant explanation power over the relatively poor performance of Japanese firms, but also over the better financial performance and growth rate of US firms.
Japan and the World Economy
This is an empirical investigation of the degree to which legal rules impact the welfare of minor... more This is an empirical investigation of the degree to which legal rules impact the welfare of minority shareholders in acquisitions. While an efficient market for corporate control is vital for an economy's growth and development, insufficient legal standards may permit coercive takeovers that have negative implications for capital markets. This research focuses on tender offers in Japan, where legal rules provide acquirers with the opportunity to make coercive takeovers that expropriate minority shareholder wealth. Japan's legal system changed in 2006 to introduce cash mergers to freeze-out remaining shareholders after successful takeovers, and in 2007 to require bidders making tender offers that seek more than twothirds of the voting securities of a target to offer to buy all the shares. However, acquirers with the stated aim of securing less than two-thirds of voting securities have no such obligation. We find evidence that these acquirers tend to make coercive two-tier offers that expropriate the interests of minority shareowners. Our results suggest that avoiding coercive takeovers requires that laws force acquirers to provide full information concerning the clean-up merger conditions as well as to pay an equivalent amount in the clean-up to minority shareowners as was offered in the initial tender offer without ambiguity. These conclusions have relevance for all countries that have not fully considered the appropriate level of protection for minority shareholders.
SSRN Electronic Journal
We analyse domestic and cross-border acquisitions by Japanese firms who face a mature economy wit... more We analyse domestic and cross-border acquisitions by Japanese firms who face a mature economy with limited growth opportunities and clarify the differences regarding how equity markets evaluate these transactions. In the analysed period, Japanese firms acquire firms not only in developed countries such as the U.S. and the EU but also in developing countries such as China, Hong Kong, India and other East Asian countries.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-r... more NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Hitotsubashi journal of commerce and …, 2008
During the internet bubble in the U.S., there were several instances that the market value of a p... more During the internet bubble in the U.S., there were several instances that the market value of a parent firm was less than the market value of its holdings of a publicly traded subsidiary. This parent company puzzle is also observed in Japan. The objective of this paper is to investigate whether this puzzle represents mispricing by the stock market, and, if so, to investigate why the observed mispricing persisted for a long period of time. The results are inconsistent with market efficiency. Because of market frictions, there is no guarantee that distortions in stock prices will always be quickly corrected by arbitrage transactions. Surprisingly, even highly liquid stocks listed on the First Section of the Tokyo Stock Exchange (TSE) can deviate substantially from fundamental values for a long period of time. We suggest these large and persistent price distortions could be attributable to the lack of active arbitrage activity in Japan due to market frictions.
Pacific-Basin Finance Journal, 2010
ABSTRACT Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, ... more ABSTRACT Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in "evergreening". Inoue et al. (2008) also showed that, compared to out-of-court settlements in the United States, agreements on out-of-court restructuring are attained more easily in Japan. However, widespread forbearance by banks and affiliated companies in addressing the needs of distressed firms indicated a serious weakness of banks and affiliated companies in instituting discipline. This is the first empirical study to examine the performance of Japanese firms that experienced out-of-court restructuring in Japan from January 1990, when the bubble economy burst, to March 2005, when the Koizumi Cabinet declared the bad debt problems of major firms to be resolved. Our results show that important biases permitted deeply unprofitable firms to survive in Japan. This finding is similar to research by Hotchkiss (1995), who analyzed post-restructuring performance in the United States. We also find that out-of-court restructurings of troubled firms in Japan were less effective in improving profitability than restructurings under Chapter 11 in the United States. However, we find that restructurings associated with new capital injections and new outside management are more likely to lead to genuine improvement in financial performance.
Journal of Banking & Finance, 2008
This is the first comprehensive study to empirically analyze the economics of private (out-of-cou... more This is the first comprehensive study to empirically analyze the economics of private (out-of-court) debt restructurings of financially distressed Japanese companies spanning the period from the burst of the bubble economy of Japan in 1990 to the time when the excessive bad debt problems of major firms were recognized as resolved in March 2005 on the basis of the stock prices of more than 200 restructurings. In Japan the mechanism of corporate monitoring is not market based (shareholder and public bondholder based) but large-investor based (large stakeholder based)-typically, banks and affiliated companies. These stakeholders are expected to efficiently resolve potential bankruptcy or collapse with better information resulting from their long-term relationship with the distressed firms. In contrast, however, this study finds that out-of-court restructurings led by banks or affiliated companies failed to gain the trust of the market because of their procrastinations in implementing fundamental solutions; and therefore, there is a need for third-party monitoring. Compared to the analysis of out-of-court settlements in the United States by Gilson et al. (1990), this study finds that agreements on out-of-court restructuring in Japan are attained more easily than in the United States. However, without third-party mediation, no fundamental changes can be expected from the restructurings. This forbearance by banks and affiliated companies in addressing the needs of distressed firms indicates the weakness of banks and affiliated companies in instituting discipline among themselves, thereby showing the importance of instituting a system to "monitor the monitor".