R&D intensity and domestic and cross-border M&A of Japanese firms before domestic M&A deregulation

In this paper, we examine the determinants of mergers and acquisitions (M&A) in Japan prior to the deregulation of domestic M&A transactions. We reveal that firm growth strategies and institutional differences in domestic and cross-border transactions are key determinants of the differences in M&A behavior. Our estimates show that domestic M&A activities are negatively related to research and development (R&D), suggesting that low technology-intensive firms have a tendency to engage in domestic M&A. For cross-border M&A, firm R&D activities have a significant positive effect, implying that a firm's own technology is important for absorbing foreign technology or competing in the host country.