Relationships matter: The impact of bank-firm relationships on mergers and acquisitions in Japan

First Draft: March 10 This Version: June 14We dissect the influence of bank-firm relationships on mergers and acquisitions in Japan. Using a comprehensive data set spanning fifteen years, we show that stronger bank-firm relationships generally increase the likelihood and size of M&A. Contrary to conventional wisdom of the adverse effects of bank-firm relationships in Japan, such as ‘zombie lending', our results indicate that Japanese banks facilitate restructuring in the 2000's. However, in cases where a bank plays a dual role as a lender and shareholder to a firm, the likelihood and size of M&A declines. This result stems from a bank's desire to maintain existing corporate governance mechanisms and control rights.32 p