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Cross-Shareholdings and Information Environment

Author

Listed:
  • Katsuhiko Muramiya

    (Graduate School of Economics, Osaka University)

  • Tomomi Takada

    (the Carroll School of Management, Boston College and the Graduate School of Business Administration, Kobe University)

Abstract

We examine the relationship between cross-shareholdings and the information environment. This issue is important because the separation of ownership and control al- lows managers to act exclusively in their own interests. Despite numerous studies on the influences of other types of ownership structures, including family, institutional investor, and block ownership structures, little is known about how cross-shareholdings influence management incentives. We highlight the Japanese market, where cross-shareholding is historically one of the prominent ownership structures. Using a unique database detail- ing the level of cross-shareholdings, we find that higher cross-shareholdings relate to (1) greater information asymmetry in the market, (2) higher earnings quality, and (3) lower firm value. The results are consistent with the quiet life hypothesis, which predicts man- agement avoids difficult decisions and costly actions when isolated from market pressures.

Suggested Citation

  • Katsuhiko Muramiya & Tomomi Takada, 2015. "Cross-Shareholdings and Information Environment," Discussion Papers in Economics and Business 15-20, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1520
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    More about this item

    Keywords

    Corporate governance; cross-shareholding; information asymmetry; earnings quality; firm value;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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