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A Theory Of Unwinding Of Cross-Shareholding Under Managerial Entrenchment

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  • Nobuyuki Isagawa

Abstract

In 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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  • Nobuyuki Isagawa, 2007. "A Theory Of Unwinding Of Cross-Shareholding Under Managerial Entrenchment," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(2), pages 163-179.
  • Handle: RePEc:bla:jfnres:v:30:y:2007:i:2:p:163-179
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    References listed on IDEAS

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    1. Cohen, Kalman J, et al, 1980. " Implications of Microstructure Theory for Empirical Research on Stock Price Behavior," Journal of Finance, American Finance Association, vol. 35(2), pages 249-257, May.
    2. Hawawini, Gabriel A. & Vora, Ashok, 1980. "Temporal aggregation and the estimation of the market price of risk," Economics Letters, Elsevier, pages 165-170.
    3. Cohen, Kalman J. & Hawawini, Gabriel A. & Maier, Steven F. & Schwartz, Robert A. & Whitcomb, David K., 1983. "Friction in the trading process and the estimation of systematic risk," Journal of Financial Economics, Elsevier, pages 263-278.
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    Cited by:

    1. 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.
    2. Shaif Jarallah & Wali Ullah, 2014. "Evolving corporate governance and the dividends behaviour regime in Japan," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), pages 279-303.

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