Do Private Equity Funds Increase Firm Value? Evidence from Japanese Leveraged Buyouts


  • Tsung-ming Yeh

    1. TSUNG-MING YEH is Associate Professor of Finance at Akita International University. His research interests include mergers and acquisitions (M&As) and corporate governance.
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    • The author is grateful for comments from Dr. Don Chew (the editor), Mr. John McCormack, Prof. Jerry Platt, Prof. Yasuo Hoshino, Prof. Hiroya Ichikawa, Prof. Yoshio Kanazaki, Prof Takaaki Wakasugi, as well as the participants at the 35th National Conference of Japan Finance Association (2011), a seminar sponsored by Japan's Tohoku Certified Tax Accountants' Association (2011), and the 20th Annual Conference on Pacific Basin Finance Economics Accounting and Management (2012). This research project received Grants-in-Aid for Scientific Research from the Japan Society for the Promotion of Science, and the research grant from Akita International University.


The author summarizes the findings of his recent study of 62 buyouts of listed Japanese companies by both Japanese and “foreign” private equity funds that were transacted between 2000 and 2007. Roughly half of the author's sample of transactions were accomplished by means of takeover bids by PE funds, and such deals were transacted at prices that represented a premium (of roughly 12%) to current market values. Most of the other PE transactions were privately negotiated deals in which the purchase prices involved discounts (of about 15% on average) to current value. For both sets of deals, however, the announcements of such buyouts were associated, on average, with a significantly positive stock market reaction.

By the cutoff date of the study (May 2010), 30 of the 62 acquired firms had realized “exits.” Those companies (though not the others) experienced significant average improvements in operating performance; and the extent of such improvements were roughly consistent with the size of the positive market reaction to the buyout announcements. The test results suggest that the value increases can be attributed to the more efficient use of assets and reduction of operating costs. Meanwhile, there was no evidence suggesting that the acquired firms cut back on their research and development, capital investments, or employee wages and growth. What's more, examination of the operating performance of the 30 companies after their exits showed no deterioration in profitability or investment spending.