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Determinants of Intercorporate Shareholdings

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  • Øyvind Bøhren
  • Øyvind Norli

Abstract

This paper examines why firms choose to spend resources on acquiring ownership rights in other firms. Based on a unique data base of every individual intercorporate shareholding on the Oslo Stock Exchange during the period 1980–1994, we find that such investments serve at least three functions. First, they play a role incorporate governance, as managers in firms with low insider holdings, diffuse ownership structure and high free cash flow tend to mutually acquire equity stakes in each other, possibly in a collective attempt to protect their human capital in the market for corporate control. Second, interfirm equity holdings serve as financial slack for growing firms, reducing potential adverse selection costs by providing an internal funding source for new investments in long-term assets. Finally, our findings also suggest that intercorporate shareholdings are an integrated part of the investor’s cash flow management system by being a liquidity buffer when cash inflows and cash outflows are non-synchronous.

Suggested Citation

  • Øyvind Bøhren & Øyvind Norli, 1997. "Determinants of Intercorporate Shareholdings," Review of Finance, European Finance Association, vol. 1(2), pages 265-287.
  • Handle: RePEc:oup:revfin:v:1:y:1997:i:2:p:265-287.
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    File URL: http://hdl.handle.net/10.1023/A:1009702703719
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    Cited by:

    1. Ingolf Dittmann & Ernst Maug & Christoph Schneider, 2008. "How Preussag Became TUI: A Clinical Study of Institutional Blockholders and Restructuring in Europe," Financial Management, Financial Management Association International, vol. 37(3), pages 571-598, September.
    2. repec:sol:spaper:2013/149192 is not listed on IDEAS
    3. Chapelle, Ariane & Szafarz, Ariane, 2005. "Controlling firms through the majority voting rule," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(2), pages 509-529.
    4. repec:eee:corfin:v:48:y:2018:i:c:p:187-216 is not listed on IDEAS

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