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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.

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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, June.
    • Handle: RePEc:bla:jfnres:v:30:y:2007:i:2:p:163-179
    DOI: 10.1111/j.1475-6803.2007.00208.x
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    Cited by:

    1. 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), vol. 61(3), pages 279-303, September.
    2. Akinobu Shuto & Takuya Iwasaki, 2014. "Stable Shareholdings, the Decision Horizon Problem and Earnings Smoothing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(9-10), pages 1212-1242, November.
    3. 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.
    4. Akinobu Shuto & Tomomi Takada, 2010. "Managerial Ownership and Accounting Conservatism in Japan: A Test of Management Entrenchment Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 815-840.

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