Working Paper Series
Cross-Ownership and the Takeover Deterrence
Abstract: Firms having significant shareholdings in one another is
not an unusual phenomenon in countries where the law admits such ownership
arrangements, like Sweden and Japan. In this paper the role of
cross-ownership as means for deterring takeovers is examined in the
framework of a simple two-firm, two-period model with raiders, differing
with respect to their valuation of a potential target, turning up randomly.
The paper argues the following points: If cross-ownership increases
managerial influence - the consequences for the shareholders depend on the
probability that the firm would have received a tender offer in absence of
cross-ownership and managers benefit from it up to a point but their gains
are negatively related to the their ability to resist takeover attempts.
Keywords: International firm ownership; takeover deterence; manager independence; (follow links to similar papers)
JEL-Codes: F23; G34; M54; (follow links to similar papers)
21 pages, December 1989
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