Cross Shareholding and Initiative Effects

Abstract

Cross shareholding can make takeovers more difficult but may be beneficial for shareholders if the manager’s private benefits align with shareholders’ benefits. Cross shareholding is more likely to take place as the congruence of interests between managers and shareholders increases, the manager’s private benefits become greater, the manager’s reservation utility is lower, and the shareholders’ share of the takeover becomes smaller. Due to the lack of monitoring, corporate value tends to be smaller with cross shareholding.