A Theory Of Unwinding Of Cross-Shareholding Under Managerial Entrenchment
AbstractIn this article I examine corporate strategies regarding cross-shareholding and the unwinding of cross-shareholding, and I present a rationale for corporate managers to unwind cross-shareholding from the perspective of managerial entrenchment. Although cross-shareholding enhances managerial entrenchment, the increased agency costs associated with managerial opportunism increase the incentives for a hostile takeover. To avoid a takeover, managers have to unwind cross-shareholdings. The unwinding of cross-shareholdings implies that managers will relinquish their entrenchment and thus will act to increase shareholders' wealth in the future. The model proposed here explains why cross-shareholdings among Japanese firms declined during the 1990s, a decade during which the cost of takeovers decreased because of financial market deregulation. 2007 The Southern Finance Association and the Southwestern Finance Association.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 30 (2007)
Issue (Month): 2 ()
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- Dow, Sandra & McGuire, Jean, 2009. "Propping and tunneling: Empirical evidence from Japanese keiretsu," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1817-1828, October.
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