This paper empirically examines the effects of the changing business strategies (e.g., new stock tie-up alliances, expanding tie-up alliances, and Mergers and Acquisitions (M&A) of Japanese financial institutions listed on the stock market. Different market effects on banks, security companies, and insurance companies are considered. In the analysis of new stock tie-ups, based on the research of Altunbas and Marques (2008) on strategic factors, it has been found that when information asymmetries exist between insurance companies and market investors, market players cannot accurately estimate insurance liabilities or value insurance companies. Market players expect that new equity tie-up strategies will encourage Japanese insurance companies to restructure from high cost, low capital ratio organizations to low cost, high capital ratio ones. In contrast, relatively sound Japanese banks have finished resolving their nonperforming loan problems, and are forging ahead with new global business initiatives.

Since the 1990s, many large Japanese financial institutions, including insurance companies, security companies, and banks, have aggressively promoted financial alliances along with Mergers and Acquisitions (M&A). The business strategies of these financial institutions have changed, not only in response to M&A but also due to financial alliances mainly. In particular, large Japanese insurance companies and banks have engaged in equity tie-ups to promote their business strategies.

In this paper, I empirically examine the short-term effects of the changing business strategies of Japanese listed insurance companies, listed security companies, and listed banks. By using event study and multiple regression analysis, I consider different market effects on organizations in different financial business categories. In my analysis of new stock tie-ups, based on the research of Altunbas and Marques (2008) on strategic factors, I examine the strategic management factor, using regressions with the Standardized Cumulative Abnormal Return (SCAR) as a dependent variable and eight strategic factors as independent variables. I find that when information asymmetries exist between insurance companies and market investors, market players cannot accurately estimate insurance liabilities or value insurance companies.

Applied Finance Journal, Market Evaluations, Strategic Alliances, Japanese Financial Institutions, Mergers and Acquisitions (M&A), Standardized Cumulative Abnormal Return (SCAR), Research and Development (R&D), Survival Waves.