Cross-ownership, takeover threat and control benefit

Daehwan Kim and Taeyoon Sung

Applied Financial Economics, 2009, vol. 19, issue 8, 659-667

Abstract: This article critically examines two conventional ideas about cross-ownership: (1) it is almost impossible to takeover a cross-owned group of firms; (2) the controlling shareholder of a cross-owned group of firms extracts certain benefit from his/her control right. Through a simple analysis, we show that the amount of funds required to takeover a cross-owned group of firms is not necessarily bigger than the amount required to takeover a similar-sized stand-alone firm. Our analysis also indicates that the separation of control right and cash-flow right does not necessarily create extra benefit for the controller. Based on the analysis, we attempt to identify real barriers to the takeover of a cross-owned group of firms.

Date: 2009
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DOI: 10.1080/09603100801982638

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