This study was conducted to examine merger and acquisition (M&A) motivations and post-M&A performance in prewar Japan. More specifically, we analyzed the following points.

First, after brief introducing case studies of a target firm that was merged or acquired, the M&A motivations of each period were examined. Using the original dataset, we summarized the time of emergence and the industrial distribution of mergers and block holdings.

Second, we conducted an empirical analysis of target firms. Analysis results showed that not only low-performance firms, but also high-growth firms were targeted for corporate mergers. However, as for block holdings, high-debt-ratio firms tended to be acquired. Firms with owners having a high shareholding ratio had low probability of being targeted, which indicates the existence of entrenchment.

Third, management turnover ratio after block holdings was examined. Compared to firms paired with a firm of a similar industry and of similar size, we found that target firms with low performance had a significantly high management turnover ratio.

Last, we examined whether performance improvement occurred in target firms after M&A. Verification results showed profitability improvement for acquired firms. Additionally, we identified factors leading to improvement and clarified that target firms which underwent management turnover were improved to a level equivalent to industry average performance. In addition, firms that were acquired by zaibatsu exceeded industry average performance.

Based on the results presented above, in terms of high management turnover ratio of acquired firms with low performance and high debt ratio, we concluded that an effective market exists for corporate control in prewar Japan.

At the dawn of the electric power industry in the late nineteenth century, there was a fierce battle between the DC (Direct Current) system advocated by Thomas Edison and the AC (Alternating Current) system led by Westinghouse (WH). The controversy ended with WH’s success in long-distance AC transmission in the late 1880s. At the same time, in Europe, the three-phase AC system also succeeded in long-distance transmission, and the AC system became the mainstream technology there as well in the United States. In Meiji, Japan, around the end of the nineteenth century, the Tokyo-based electric power company imported its 50Hz generators from Germany, while the Osaka-based electric power company did the 60Hz dynamos from the US. This resulted in the existence of two commercial frequencies ― 50 Hz in East Japan and 60 Hz in West Japan ― a split that still exists today.

In 1951, after years of debate on the postwar electric power supply plan, the nine monopolized regional electric power companies (NEPC) was established, and in the following year Electric Power Development Company (EPDC), specializing power source develop ment, was established by the government to support NEPC. With Japan’s dramatic growth resulting from its postwar economic recovery, a rapid increase in demand for electricity in large cities with low demand in rural regions revealed the limitation of Japan’s power supply, still divided in terms of frequency. The result was that in 1958, the “Nationwide Operation System” was established by NEPC and EPDC.

Unexpectedly, it was EPDC and not NEPC that played a very important role in the nationwide operation. In 1965, using state-of-the art DC technology developed in Sweden, EPDC succeeded in constructing the Sakuma Frequency Convertor Station (Sakuma FC), which enabled electricity transfer between different frequency systems. On the basis of the technological development of Sakuma FC, EPDC then successfully developed a domestic HVTC (high voltage thyristor convertor) technology at Sakuma HVC (High Voltage Convertor Experimental Station). HVTC made possible Hokkaido-Honshu Interlinking Line and Kii Channel Interlinking Line. Thus, by achieving this technological breakthrough, EPDC pioneered nationwide power supply operation.

Why was it possible for EPDC, a peripheral company with small managerial resources, to carry out such an innovative role? A tentative answer is that there was no other choice for EPDC to do so.

In this paper I describe a dynamic mechanism of a peripheral company.