Cross-Shareholding, Returns and Entrenchment Behaviour Among Japanese Firms, 1990-2008

18 Pages Posted: 19 Mar 2012

See all articles by Vikas Mehrotra

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis

Dick Beason

University of Alberta - Department of Marketing, Business Economics & Law

Ken Gordon

JapanInvest

Date Written: March 14, 2012

Abstract

This paper is concerned with the nature of ownership, returns and corporate performance and investment behavior in the ‘post-bubble’ environment surrounding Japanese firms. Market participants have feared that ‘unwinding’ of cross-shareholding would have negative consequences for returns, on the assumption of a downward sloping demand curve for equities. We examine whether this is the case, but more importantly consider what consequences the changing nature of ownership might have for firm behavior. Interestingly, while overall unwinding of cross-holdings is indeed consistent with downward sloping demand curves for equities, controlling for endogeneity biases and focusing on holdings by financial institutions, we find the opposite result. We interpret this as evidence that at least one facet of the traditional ‘main-bank system’ of Japan is alive and well- namely that increased bank holdings can be viewed as intervention by banks in assistance of financially distressed firms. In terms of firm behavior, our results are consistent with the literature on entrenchment. That is, firms that are more closely cross-held by other firms (financial or non-financial) tend to invest more heavily in capital stock and research and development. This is consistent with the notion that firms that are less vulnerable to takeover tend to spend and invest more than their more takeover prone counterparts.

Keywords: Cross-shareholding, main-bank system, entrenchment, takeover

JEL Classification: G00, G01, G21, G32, G34

Suggested Citation

Mehrotra, Vikas and Beason, Dick and Gordon, Ken, Cross-Shareholding, Returns and Entrenchment Behaviour Among Japanese Firms, 1990-2008 (March 14, 2012). Available at SSRN: https://ssrn.com/abstract=2022514 or http://dx.doi.org/10.2139/ssrn.2022514

Vikas Mehrotra (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

School of Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2976 (Phone)
780-492-3325 (Fax)

Dick Beason

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

Ken Gordon

JapanInvest

48 Curzon St.
London W1J 7UL
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
141
Abstract Views
881
rank
204,351
PlumX Metrics