2006 Reports

Competition for Corporate Control: Institutional Investors, Investment Funds, and Hostile Takeovers in Japan

Schaede, Ulrike

The recession and banking crisis of the 1990s have triggered a complete reorientation in corporate strategy by large Japanese firms, away from the previous goal of diversification financed by bank loans, and towards market-financed concentration on select core businesses. The transition has necessitated corporate reorganization by almost all large firms, causing a wave of spin-off, mergers, and acquisitions. Extensive legal reforms have enabled this reorganization and introduced more stringent rules on accounting and disclosure. The confluence of these two events - access and transparency - has paved the way for a market for corporate control, fueled by institutional investors and investment funds, including foreigners, as major players. While the M&A boom of the early 21st century may partially be attributable to a window of economic opportunity, the systemic changes in Japan's financial markets are irreversible and therefore constitute a strategic inflection point. Contested corporate control has become an indelible part of Japanese finance and corporate governance.