Cross-Shareholding and Unwinding of Cross-Shareholding under Managerial Entrenchment

要約

This paper examines corporate strategies regarding cross-shareholding and the unwinding of cross-shareholding, and presents a rationale for corporate managers to unwind cross-shareholding from the perspective of managerial entrenchment. While cross-shareholding enhances managerial entrenchment, the increased agency costs associated with managerial opportunism increase incentives for a hostile takeover. In this situation, choosing to increase the cost of a takeover via cross-shareholding is no longer a good strategy for managers to employ to avoid a takeover. The only way to avoid a takeover is to decrease the value of the takeover by unwinding cross-shareholding. The unwinding of cross-shareholding implies that managers will relinquish their entrenchment, and thus will act to increase shareholders’ wealth in the future. This commitment decreases the value of a takeover, and therefore reduces the threat that a takeover will occur. The model proposed here explains why cross-shareholdings among Japanese firms declined during the 1990s, a decade during which the cost of takeovers decreased due to financial market deregulation.