Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 243: Cross-Ownership and the Takeover Deterrence

Sten Nyberg
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Sten Nyberg: Research Institute of Industrial Economics (IFN)

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

JEL-codes: F23; G34; M54

21 pages, December 1989

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