Cross-Shareholdings and Information Environment

Katsuhiko Muramiya and Tomomi Takada ()
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Tomomi Takada: the Carroll School of Management, Boston College and the Graduate School of Business Administration, Kobe University

No 15-20, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We examine the relationship between cross-shareholdings and the information environment. This issue is important because the separation of ownership and control al- lows managers to act exclusively in their own interests. Despite numerous studies on the influences of other types of ownership structures, including family, institutional investor, and block ownership structures, little is known about how cross-shareholdings influence management incentives. We highlight the Japanese market, where cross-shareholding is historically one of the prominent ownership structures. Using a unique database detail- ing the level of cross-shareholdings, we find that higher cross-shareholdings relate to (1) greater information asymmetry in the market, (2) higher earnings quality, and (3) lower firm value. The results are consistent with the quiet life hypothesis, which predicts man- agement avoids difficult decisions and costly actions when isolated from market pressures.

Keywords: Corporate governance; cross-shareholding; information asymmetry; earnings quality; firm value (search for similar items in EconPapers)
JEL-codes: G32 M41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-07
New Economics Papers: this item is included in nep-cfn
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