Economics at your fingertips  

How cross‐shareholding influences financial reporting: Evidence from Japan

Katsuhiko Muramiya and Tomomi Takada

Corporate Governance: An International Review, 2020, vol. 28, issue 5, 309-326

Abstract: Research Question/Issue This study investigates the effect of cross‐shareholding on financial reporting and the information environment in the Japanese market and hypothesizes that higher cross‐shareholding is related to lower contract‐efficient earnings recognition and higher information asymmetry because cross‐shareholding entrenches managers. Furthermore, we investigate whether managers try to maximize their self‐interest or to enjoy a quiet life when they are isolated from market pressure and entrenched owing to cross‐shareholding. Research Findings/Insights Using a unique dataset on cross‐shareholding among Japanese listed firms, we find that higher cross‐shareholding is associated with (1) less timely loss recognition and (2) higher probability of information‐based trading. Further investigation clarifies that higher cross‐shareholdings are related to (3) lower absolute forecast error and (4) lower R&D expenditures. The first two findings indicate that cross‐shareholding entrenches managers, and the last two findings show that entrenched managers enjoy a quiet life. Theoretical/Academic Implications This study contributes to the corporate governance literature by providing new evidence that cross‐shareholding influences financial reporting and the information environment in the market by inducing managers to become entrenched and to enjoy a quiet life. Practitioner/Policy Implications This study provides implications for policymakers in markets in which cross‐shareholding is a common ownership format. To enhance contract‐efficient financial reporting and/or reduce information asymmetry in the market, it may be necessary to reduce cross‐shareholding.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=0964-8410&site=1

Access Statistics for this article

Corporate Governance: An International Review is currently edited by William Judge

More articles in Corporate Governance: An International Review from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2020-12-26
Handle: RePEc:bla:corgov:v:28:y:2020:i:5:p:309-326