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Cross-Shareholding and Unwinding of Cross-Shareholding Under Managerial Entrenchment

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  • Nobuyuki Isagawa

    (Graduate School of Business Administration, Kobe University)

Abstract

This paper examines corporate strategies regarding cross-shareholding and the unwinding of cross-shareholding, and presents a rationale for corporate managers to unwind cross-shareholding from the perspective of managerial entrenchment. While cross-shareholding enhances managerial entrenchment, the increased agency costs associated with managerial opportunism increase the incentives for a hostile takeover. In order 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 due to financial market deregulation.

Suggested Citation

  • Nobuyuki Isagawa, 2006. "Cross-Shareholding and Unwinding of Cross-Shareholding Under Managerial Entrenchment," Discussion Papers 2006-02, Kobe University, Graduate School of Business Administration.
    • Handle: RePEc:kbb:dpaper:2006-02
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    File URL: https://www.b.kobe-u.ac.jp/papers_files/2006_02.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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