An explanation of bidder returns in corporate acquisitions: the case of Japanese acquisitions of U.S. firms

Over the past three decades researchers have found a dramatic drop in the returns generated by acquiring firms in domestic acquisitions, dropping to a level insignificantly different from zero during the 1980s. In this paper we find this not to be the case for Japanese firms that acquire domestic U.S. firms. Moreover, contrary to what has been found for domestic acquisitions, a positive relationship was found between free cash flow and the returns accrued by the Japanese acquiring firm. This result may be a result of the institutional participation in the management of Japanese firms playing a role in eliminating agency problems for them.