Post-stock Performance of Bailout Acquisitions in Japan: A One Decade Experience

要約

In this paper, we found a strong positive post-rescue performance for acquiring firms. Furthermore, we observed even more dramatic recovery effects when we focused on accounting accrual components, such as the credit sale increases or reduction of PPE depreciation value.
We found that investors have been dubious with the solvency of the troubled firms at least one year before the announcement date of their acquisition. As a result, they sold the troubled firms’ stocks heavily leading to sluggish sales that hover at a considerably low level during a one year period. However, once they are rescued by an acquiring firm, the target firm’s business recovers dramatically.
Focusing on accounting accrual components (changes in ratio of receivables to total assets for one year preceding the rescue), we found a 35.92% average difference for three-year CARs between the highest and lowest ranked firms (reversed out into the acquiring firm’s stock appreciation). We also found a 35.29% average difference for three year CARs between high vs. low firm ratio changes of depreciation costs against total assets for the year preceding the announcement.
Finally, we found the reversal effect on troubled firms who underwent a large stock sell-off, and found that a greater stock sell-off is strongly correlated to a more drastic reversal for the acquiring firm’s stock appreciation after buyout.

[JEL Classification] G34, M41
[Key Words] Accounting accruals, Rescued M&A, Accruals reversals