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Cross Shareholding and Initiative Effects

Author

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  • Yasuhiro ARIKAWA
  • Atsushi KATO

Abstract

Cross shareholding that makes takeovers difficult is not necessarily harmful to shareholders due to initiative effects. As long as manager's private benefits are to some extent in line with shareholders' benefits, cross shareholding may benefit shareholders. Cross shareholding is more likely to occur as the congruence of interests between managers and shareholders rises, the manager's private benefits becomes greater, the manager's reservation utility gets lower, and shareholders' pie in the case of a takeover becomes smaller. Due to a lack of monitoring, the corporate value of a firm tends to be smaller in cross shareholding. However, if we include managers' private benefits in social welfare function, it is possible that the social welfare is higher in cross shareholding.

Suggested Citation

  • Yasuhiro ARIKAWA & Atsushi KATO, 2004. "Cross Shareholding and Initiative Effects," Discussion papers 04017, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:04017
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    File URL: https://www.rieti.go.jp/jp/publications/dp/04e017.pdf
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    Cited by:

    1. Guth, Werner & Nikiforakis, Nikos & Normann, Hans-Theo, 2007. "Vertical cross-shareholding: Theory and experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 69-89, February.
    2. Yasuhiro Arikawa & Atsushi Kato, 2015. "Cross Shareholding and Initiative Effects," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 305-319, February.
    3. Matsumoto, Akio & Merlone, Ugo & Szidarovszky, Ferenc, 2010. "Dynamic oligopoly with partial cooperation and antitrust threshold," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 259-272, February.

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