2002. 27

Unwinding of Cross Shareholding under Managerial Entrenchment

Nobuyuki Isagawa

Unwinding of Cross Shareholding under Managerial Entrenchment

Nobuyuki Isagawa

Graduate School of Business Administration
Kobe University
2-1, Rokko, Nada, Kobe, Hyogo
657-8501, Japan

phone & fax: +81-78-803-6907
e-mail: isagawa@rose.rokkodai.kobe-u.ac.jp

1. Introduction

Cross shareholding has long been a prominent feature of Japanese corporate finance.
However, since the 1990s, cross shareholdings among Japanese firms have been
declining. Kuroki (2001) has reported that the proportion of cross shareholdings in theoverall market decreased gradually in the 1990s, from about 17% at the end of 1990 toabout 10% at the end of 2000. Ang and Constand (2002) also reported that corporate
and financial institution holdings tended to decrease during the 1990s in Japan. Given
the recent decline in cross shareholdings, this paper provides a simple entrenchment
model in which corporate managers dynamically possess cross shareholdings and thenunwind such shareholdings in response to external conditions. Although several studies
have focused on cross shareholdings among Japanese firms, little attention has been
paid to the theoretical issue of the unwinding of cross shareholdings. This paper is an
initial attempt to explore the subject of the unwinding of cross shareholdings explicitly.
There are two interpretations with regard to managerial behavior under conditions ofcross shareholding.1 One interpretation holds that cross shareholding acts as a potential
disciplining device in a corporative long-term relationship among member firms. In linewith this interpretation, Osano (1996) theoretically showed that cross shareholding
plays an important role in avoiding inefficient myopic behavior among managers.
Berglof and Perotti (1994) provided a model to show that cross shareholding provides areciprocal monitoring mechanism among member firms and avoids managerial
opportunism. Empirically, Ferris, Kumar, and Sarin (1995) and Douthett and Jung
(2001) demonstrated that the magnitude of costs caused by informational asymmetry is
lower for keiretsu firms than for independent firms. Since cross shareholdings among1

Hoshi and Kashyap (2001, Chapter 6) summarize the benefits and costs of crossshareholdings.
1keiretsu firms are tighter than those of independent firms, these results are consistent
with the hypothesis that cross shareholding is an effective mechanism for corporate
operations.
Another interpretation is that cross shareholdings enhance managerial entrenchment
and insulate corporate managers from interference by corporate control markets such as
hostile takeovers (e.g., Nakatani (1984), Corbett (1994), Sheard (1994), Gilson and Roe(1993), and Morck and Nakamura (1999)). In general, a hostile takeover tends to be
more problematic and/or expensive when a target firm engages in cross shareholding,because the shares in cross shareholdings are rarely translated.2 As a result, member
firms attempt to maximize management and employee utility, rather than shareholder
utility.3
Many empirical studies appear to support the hypothesis that cross shareholding may
dampen the disciplinary effectiveness of the markets for corporate control. Nakatani(1984), Prowse (1992), Douthett and Jung (2001), and Ang and Constand (2002) havereported that the profitability of firms in a keiretsu group is lower than that ofindependent firms. Nakatani (1984) and Ang and Constand (2002) also reported thatindependent firms have higher growth rates than keiretsu firms. Nakatani (1984), Brown,
Soybel, and Stickney (1994), as well as Gibson (2000), have argued that the averagecompensation of employees of keiretsu firms exceeds that of employees of independent
firms. With regard to dividend payments, Nakatani (1984) found that keiretsu firms pay
fewer dividends than do independent firms. These results, taken together, suggest thatfirms possessing tight cross shareholdings do not seek to maximize the shareholders’2

According to Ito (1992) and Morck and Nakamura (1999), one traditional motivation

for the formation of cross shareholdings was to prevent hostile takeovers.
3

In the U.S., Karpoff and Malatesta (1995) showed that an introduction of stateanti-takeover legislation was associated with reduced firm value.
2

wealth.
In addition, Douthett and Jung (2001) reported that keiretsu firms have significantly
lower management holdings than independent firms. They also noted that keiretsu firms
are significantly larger than independent firms. For independent firms, Prowse (1992)
suggested that the top (individual) shareholders control management so well that firms
generate high returns. These findings are consistent with the hypothesis that conflict
between management and outside shareholders is more serious in the case of firms withcross shareholdings than in the case of firms without cross shareholdings.4
In this paper, corporate strategies regarding cross shareholding and the unwinding ofcross shareholding are considered from the perspective of managerial entrenchment. For
the reasons mentioned above, it is assumed that cross shareholding is an entrenchment
device allowing self-interested managers to pursue their own interests. In theentrenchment model, entrenched managers make decisions about corporate financial
policy subject to pressures from the market for corporate control. Such an approach
appears to be appropriate for analyzing large listing firms, in which management isseparated from ownership. Most Japanese firms that have cross shareholdings share thisfeature. The managerial entrenched approach has recently been developed in both theempirical corporate finance literature (e.g., Morck, Shleifer, and Vishny (1988) andBerger, Ofek, and Yermack (1997)), and in the theoretical corporate finance literature(e.g., Zweibel (1996), Isagawa (2002), and Novaes (2003)).
In the present study, two firms’ strategies of cross shareholding are analyzed.
Managers come to a decision about cross shareholding under the potential pressure
exerted by the threat of a hostile takeover. A common agency problem takes place4

In contrast to Ferris, Kumar, and Sarin (1995) and Douthett and Jung (2001), a study

by Dewenter, Novaes, and Pettway (2001) reported that the magnitude of informational
asymmetry is larger for keiretsu firms than for independent firms.
3

between managers and outside shareholders. The value of a hostile takeover in such asituation equals to the shareholders’ losses caused by managerial opportunism. The total
cost of a takeover is dependent on whether or not cross shareholding exists. Cross
shareholding enhances managerial entrenchment, so that additional costs are incurred
during takeover. In this sense, cross shareholding is a desirable entrenchment device forself-interested managers.
When the value of a takeover is relatively small (i.e., when the agency problem
between outside shareholders and management is not overly serious), entrenchedmanagers can avoid takeovers by choosing cross shareholding. Cross shareholding
raises the cost of a takeover to such an extent that the takeover cannot succeed. In otherwords, cross shareholding enhances managerial entrenchment and helps managers to
avoid pressure from markets for corporate control. Thus, under the conditions of crossshareholding, managers of member firms entrench themselves with each other, thereby
rendering it impossible to control managerial opportunism.
On the other hand, when the value of a takeover is relatively large (i.e., when theagency conflict between outside shareholders and management is extremely serious),managers cannot avoid takeovers by engaging in cross shareholding, because the valueof a takeover exceeds its cost, even though cross shareholding exists. In such a situation,
managers can avoid takeovers by decreasing the value of a takeover rather than byincreasing the cost of a takeover. To achieve the goal of a decrease in takeover value,
managers voluntarily unwind cross shareholding and relinquish their entrenchment. This
option implies that managers cannot pursue their own interests at the cost of theshareholders’ wealth, because the managers would be easily replaced by hostile
takeovers without entrenchment. Once cross shareholding is unwound, managers haveto act to increase the shareholders’ wealth in order to retain their managerial positions.
Thus, the unwinding of cross shareholding is a credible message from managers thatthey will not behave opportunistically in the future. Since the value of a takeover4decreases in response to the unwinding of cross shareholding, no hostile takeover occurs.
In the present model, managers dynamically change firms’ cross shareholding strategies
in response to the external conditions that affect the relationship between the cost of atakeover and the value of a takeover.
The present model has several implications regarding cross shareholding and theunwinding of cross shareholding among Japanese firms. First, firms tend to unwind
cross shareholdings when the cost of corporate control declines (or the relative value ofcorporate control increases). As noted earlier, cross shareholdings among Japanese firms
declined during the 1990s. During the same period, Japanese financial markets
underwent substantial deregulation. For example, commissions on stock transactions
were gradually freed in 1994 and 1998, and they were completely freed in 1999. This
liberalization directly lowered the transaction costs of hostile takeovers. Thus, the costof controlling corporations through the financial markets, represented by hostile
takeover activity, became lower in the 1990s. The fact that Japanese firms unwoundcross shareholdings at a time when corporate control was relatively easy is consistent
with the prediction of the model.
Second, the present model predicts that profitability is lower in firms with crossshareholdings than in firms without cross shareholdings. While managers will pursue
their own interests under conditions of cross shareholding, they have to act in support ofthe shareholders’ wealth once the cross shareholdings are unwound. As a result, theprofitability of firms with cross shareholdings is lower than that of firms without crossshareholdings. This prediction is consistent with the empirical findings cited above. The
present model also predicts that stock prices will rise in response to the unwinding ofcross shareholdings, as such unwinding is a signal that managers will act to increase theshareholders’ wealth.
Third, the present model provides a mean of comparing cross shareholding andself-shareholding (holding treasury stock) from the viewpoint of an anti-takeover device.

5

Until the 2001 revision of the Commercial Law, Japanese firms were prohibited frompossessing treasury stocks. However, since the 2001 revision, Japanese firms have beenable to choose between possessing cross shareholdings or self-shareholdings as ananti-takeover device. The present model suggests the conditions under which each ofthese options might be desirable for entrenched managers.
The remainder of this paper is organized as follows. In Section 2, an entrenchment
model is presented. Section 3 demonstrates how to determine the stock price of a firm
when cross shareholdings are involved. Section 4 analyzes firms’ strategies regarding
cross shareholding and the unwinding of cross shareholding in a case in which two
firms face the same external conditions. Section 5 analyzes cases in which each of thetwo firms faces a different condition. In Section 6, several empirical implications of themodel are considered. Section 7 concludes the paper.

2. An Entrenchment Model

There are two all-equity firms, firm a and firm b. Each firm is run by a single
entrenched manager (the incumbent manager). The number of outstanding shares ofeach firm is normalized to one. Without a loss of generality, it is assumed that neither
firm has any initial financial slack. All participants are risk-neutral, and the interest rate
is zero. For the sake of analytical simplicity, it is assumed that the two firms are
identical, and therefore the subscripts representing firm a and firm b are sometimes
omitted.
The sequence of events and decisions, described in Figure 1, are as follows. At date-0,
each incumbent manager makes a decision about cross shareholding. If both managers
agree on cross shareholding, then each firm issues n shares to the other firm. In thecurrent model, the optimal number of shares issued for cross shareholding is notconsidered. Instead, as described in Berglof and Perotti (1994) and Osano (1996), it is6

assumed that each firm holds a n/(1+n)≡α (0<α<1/2) fraction of the other firm’s sharesas a cross shareholding. After observing the firms’ decision on cross shareholding,potential raiders decide whether or not to launch takeovers (takeover stage).

date-0date-1date-2state realization

date-3return realization

shareholding

shareholding

decision about strategy

takeover stage

takeover stage

takeover stage

Figure 1. Sequence of Events and Decisions

At date-1, it is commonly revealed whether the product market condition for eachfirm is good (state G) or bad (state B). The prior probability of state G is θ (0<θ<1), andthat of state B is 1-θ. In this section and section 4, it is assumed that both firms
experience the same state. That is, both firms face state G with probability θ, and both
firms face state B with probability 1-θ. In section 5, the case is considered in which eachfirm experiences a different state.
Knowing the true state, each manager reconsiders the question of whether or not toengage in cross shareholding. If cross shareholding was agreed upon at date-0, but one
manager does not wish to maintain it, then the cross shareholding is unwound. In thiscase, each firm sells the other firm’s shares on the market.5 Note that while crossshareholding is bilateral, the unwinding of cross shareholding is unilateral. If bothmanagers decide to engage in (or maintain) cross shareholding at date-1, then cross5

As argued in the introduction, Japanese firms were prohibited from owning their own

shares until 2001. In response to this issue, it is assumed in the present model that thefirm cannot buy its own shares from the other firm when cross shareholding is
unwound.
7

shareholding will be maintained until date-3. The takeover stage occurs just following
the firms’ decision regarding cross shareholding as it did at date-0.
At date-2, each manager chooses the firm’s operating strategy. There are two possible
strategies the incumbent manager could pursue, strategy M or strategy S. Strategy M
gives the incumbent manager private benefits, but decreases the shareholders’ wealth. In
contrast, strategy S increases the shareholders’ wealth, but gives no private benefits tothe incumbent manager. After the manager chooses an operating strategy, the takeoverstage occurs as it did at date-0 and date-1.
At date-3, each firm’s operating return is realized. The operating return depends on
both the state realized at date-1 and the strategy undertaken at date-2. Let Xi denote theoperating return conditional on strategy M being undertaken in state i∈{G, B}, and let Yi
denote the operating return conditional on strategy S being undertaken in state i∈{G, B}.
Also, let define ∆i≡Yi-Xi. It is assumed that
0 < ∆ G < ∆ B < 2∆ G .

(1)

In assumption (1), ∆i>0 (i=G, B) indicates that strategy S generates a larger returnthan strategy M in both states. In this sense, strategy S is more desirable for theshareholders than strategy M, regardless of the state realization. The second inequalityin (1), ∆G<∆B, indicates that the difference between the return generated by strategy S
and that generated by strategy M is larger in state B than in state G. This implies that theshareholders’ loss caused by managerial opportunism in state G is less than that in state
B. Therefore, as long as strategy M is undertaken, state G is desirable for theshareholders. The last inequality is assumed for a technical reason mentioned below.
In the current model, the takeover stage occurs at each date (date-0, date-1, anddate-2). If a takeover succeeds, then a new manager replaces the incumbent manager. A
new manager, who behaves in support of the shareholders’ wealth, always undertakes
strategy S. However, if strategy M has already been undertaken, a switching cost, Z>0,8

is required to change the firm’s operating strategy. It is assumed that
∆ B − ∆G < Z < ∆G .

(2)

It follows from the third inequality of assumption (1) that there exists a Z that satisfies(2). If the incumbent manager chooses strategy M, then the switching cost decreases thevalue of the firm, resulting in a decrease in the value of a takeover. Then, the incumbent
manager can make a takeover more difficult by investing in strategy M. In the current
setting, the managerial investment decision is itself an entrenchment device, as pointed
out by Shleifer and Vishny (1989) and Noe and Rebello (1997).
The process of takeover is basically in accordance with the process as described by
Zweibel (1996). The value of a takeover is given by the difference between the firm’s
stock price under an incumbent manager and that under a new manager. The cost of atakeover depends on whether cross shareholding exists or not. Cross shareholding
enhances an incumbent manager’s entrenchment, which presents an additional cost in
the event of a takeover. Formally, the cost of a takeover is C without cross shareholding
and C+E under conditions of cross shareholding, where C≥0 and E>0. Cross
shareholding increases the cost of a takeover by E. For the sake of simplicity, it isassumed for the present that C=0. A takeover succeeds if its value is larger than its cost.
An incumbent manager may act in her own interest in conflict with the shareholders’wealth. An incumbent manager derives utility A>0 from being in the same managerial
position until the final date (date-3), and utility B>0 from completing strategy M. It is
assumed that that an incumbent manager does not have any utility if she is replaced by atakeover. For an incumbent manager, to undertake strategy M without a takeover is thebest outcome, and to undertake strategy S without a takeover is the second best outcome.
To be replaced by a takeover is the worst outcome (i.e., utility is zero). As shown later,
no takeover occurs in the equilibrium, because an incumbent manager can avoid atakeover by committing to not undertake strategy M.

93. Cross Shareholding and Stock PriceThis section analyzes the stock price of a firm under conditions of cross shareholding,and the stock price that occurs just after the unwinding of cross shareholding. Let Fj(ch)denote the expected operating return of firm j∈{a, b} under conditions of crossshareholding. Also let Pj(ch) denote the stock price of firm j∈{a, b} under crossshareholding. Firm a has n shares of firm b under cross shareholding, then the total
value of the assets of firm a is Fa(ch)+nPb(ch). Since firm a issues 1+n shares,
P a (ch) = [ F a (ch) + nP b (ch)] /(1 + n) .

(3)

Similarly,
P b (ch) = [ F b (ch) + nP a (ch)] /(1 + n) .

(4)

By solving (3) and (4) and using n/(1+n)≡α, the stock price of firm j under crossshareholding is given by
P j (ch) = [ F j (ch) + αF k (ch)] /(1 + α ) , j , k ∈ {a, b}, j ≠ k .

(5)

In particular, when two firms have identical expected operating returns as those of thecurrent setting, Fa(ch)=Fb(ch), then,P j (ch) = [ F j (ch) + αF j (ch)] /(1 + α ) = F j (ch) , j ∈ {a, b} .

(6)

Next, consider the stock price of a firm after cross shareholding has been unwound.
Let Fj(uw) denote the expected operating return of firm j∈{a, b} just after theunwinding of the cross shareholding. Also let Pj(uw) denote the stock price of firm j∈{a,b}, conditional on cross shareholding being unwound. When cross shareholding is
unwound, firm j sells n shares of the other firm k on the market. Then, the total value ofthe assets of firm j is Fj(wh)+nPk(uw). Since the total number of shares is 1+n, the stock10

price of firm j is given by
P j (uw) = [ F j (uw) + nP k (uw)] /(1 + n) , j , k ∈ {a, b}, j ≠ k .

(7)

It follows from (7) that
P j (uw) = [ F j (uw) + αF k (uw)] /(1 + α ) , j , k ∈ {a, b}, j ≠ k .

(8)

In particular, when two firms have identical expected returns, the stock price of firmj∈{a, b}, conditional on cross shareholding being unwound, is given by
P j (uw) = [ F j (uw) + αF j (uw)] /(1 + α ) = F j (uw) .

(9)

It follows from (5) and (8) (or (6) and (9)) that cross shareholding and the unwindingof cross shareholding do not affect the stock price of a firm if the firm’s expected
operating return is identical in both cases. However, in the present setting, both theoperating return and the stock price of a firm change in response to strategies regarding
cross shareholding.

4. Cross Shareholding and Unwinding of Cross Shareholding

First, it is assumed that
∆G < E < ∆ B .

(10)This section demonstrates that, under (1), (2), and (10), the two firms agree on crossshareholding at date-0, maintain cross shareholding in state G, and unwind crossshareholding in state B. Since the two firms are completely identical, only one firm isconsidered and the subscripts of firm j∈{a, b} are omitted in this section.

4. 1. Maintaining Cross Shareholding in State G

11This subsection examines what takes place after state G is realized. Figure 2
illustrates a decision tree in state G. The boldface lines in the Figure correspond to theequilibrium outcome at each decision stage, as argued below. Backwards-induction
arguments are used to analyze the equilibrium path.
Suppose that an incumbent manager is still in control and cross shareholding exists at
date-2 (see the upper node of T2 in Figure 2). It follows from (6) that the stock price ofa firm, conditional on strategy M being undertaken, is equal to XG. On the other hand, if
a takeover occurs and a new manager is employed, then the stock price of a firm is YG-Z.
Note that a switching cost, Z, is required at date-2 to change the firm’s operating
strategy. Then, the value of a takeover at date-2 in state G, conditional on crossshareholding being retained, V2(G, ch), is given by
V2 (G, ch) = (YG − Z ) − X G = ∆ G − Z .

(11)When cross shareholding exists, the cost of a takeover is E. Since condition (10) implies
V2(G, ch)<E, a takeover cannot succeed. Therefore, the incumbent manager undertakes
strategy M under conditions of cross shareholding (see the upper node of M2 in Figure
2).
Turning to the date-1 takeover stage (see the upper node of T1 in Figure 2), it follows
from the above argument that the stock price of a firm under the incumbent manager,
with cross shareholding, is given by XG. On the other hand, the stock price of a firmchanges to YG if a new manager is employed. Note that no switching cost is required at
date-1, because the firm’s operating strategy has not been chosen. Then, the value of atakeover at date-1 under conditions of cross shareholding, V1(G, ch), is given by
V1 (G, ch) = YG − X G = ∆ G .

(12)

It follows from (10) that V1(G, ch)<E. Thus, no takeover succeeds in such a situation.

12

As shown formally in the next subsection, the incumbent manager chooses strategy S
once cross shareholding is unwound at date-1. It is clear that if strategy S has been
undertaken or will be undertaken, then the value of a takeover is zero so that no
takeover will occur. The boldface lines succeeding the lower node of T1 in Figure 2
represent this outcome.
These results suggest that the incumbent manager can undertake strategy M in state G,provided cross shareholding still exists. That is, by possessing cross shareholdings, theincumbent manager can achieve the best outcome. Then, both managers make thedecision to retain cross shareholding at date-1 after state G is realized. Now, thefollowing proposition can be obtained.

Proposition 1. Suppose that (1), (2), and (10) are satisfied. In state G, both incumbent
managers possess cross shareholdings at date-1 and they undertake strategy M at date-2.
No takeover occurs in the equilibrium.

4.2. Unwinding Cross Shareholding in State B

This subsection examines what occurs after state B is realized. A decision tree isillustrated in Figure 3. Suppose that cross shareholdings are maintained and that strategy
M is undertaken at date-2. By the logic of the same argument as that used in the case ofstate G, the value of a takeover at date-2 under conditions of cross shareholding, V2(B,ch), is given by
V2 ( B, ch) = (YB − Z ) − X B = ∆ B − Z .

(13)

It follows from (2) and (10) that V2(B, ch)<∆G<E. Since the value of a takeover issmaller than its cost, a takeover does not succeed at date-2 (see the upper node of T2 in
Figure 3). As a result, the incumbent manager undertakes strategy M at date-2 under13

conditions of cross shareholding in state B (see the upper node of M2 in Figure 3).
However, in contrast to state G, in state B the incumbent manager is replaced by atakeover at date-1, if the corporate control markets believe that the manager will choose
strategy M. The reason for this is that the date-1 value of a takeover under conditions ofcross shareholding, V1(B, ch)=∆B, is larger than its cost, E, when (10) is satisfied. This
would be the worst possible outcome for the incumbent manager (see the boldface lines
succeeding the upper node of T1 in Figure 3).
In order to avoid a takeover, the incumbent manager has to commit to undertaking
strategy S. Unwinding of cross shareholdings is an effective strategy to avoid a takeover.
Suppose that cross shareholding is unwound at date-1, such that the cost of a takeover
becomes zero. The value of a takeover is positive, dependent on strategy M being
undertaken, which is given by (13); in this case, the incumbent manager is replaced by
the date-2 takeover if she undertook strategy M (see the lower node of T2 in Figure 3).
Therefore, the incumbent manager undertakes strategy S after cross shareholding had
been unwound at date-1 (see the lower node of M2 in Figure 3). Unwinding of crossshareholding is a credible signal that the incumbent manager will never choose strategy
M.
Predicting that strategy S would be undertaken in the future, there is no reason for the
corporate control markets to launch a takeover at date-1 (see the lower node of T1 in
Figure 3). The incumbent manager can avoid a hostile takeover by unwinding crossshareholding at date-1. Since this is the second best outcome for the incumbent manager,
she chooses to unwind cross shareholding at date-1 (see node M1 in Figure 3). The
following proposition summarizes the equilibrium path in state B.

Proposition 2. Suppose that (1), (2), and (10) are satisfied. In state B, both incumbent
managers unwind cross shareholdings at date-1 and undertake strategy S at date-2. No
takeover occurs in the equilibrium.

14

The only difference between Figure 2 and Figure 3 is that, conditional on crossshareholding being maintained, a takeover occurs at date-1 in Figure 3, whereas no
takeover occurs in Figure 2 (see the upper node of T1 in each Figure). The crucial
difference occurs in these cases because condition (10) is satisfied.
Intuitively, condition (10) says that in state G, the value of a takeover is relatively
small compared to the cost of a takeover, and in state B, the value of a takeover isrelatively large compared to its cost. The incumbent manager can avoid a hostile
takeover by increasing the cost of a takeover in state G, because the value of a takeoveris relatively small. In state B, however, the manager can no longer avoid a takeover byincreasing its cost, because the value of a takeover is larger than its cost. In such asituation, the manager has to decrease the value of a takeover in order to retain her
current position. Unwinding cross shareholdings is a good way to decrease the value ofa takeover. As shown just above, the unwinding of cross shareholding is a credible
signal that an opportunistic manager will have to promote the shareholders’ wealth in
the future.

4.3. Formation of Cross Shareholding at Date-0

Given Propositions 1 and 2, it can be shown that cross shareholding is agreed upon at
date-0. Since strategy M is undertaken with probability θ, and strategy S is undertakenwith probability 1-θ, the value of a takeover at date-0, V0, is equal to θ∆G. It follows
from (1) and (10) that
0 < V0 = θ∆ G < E .

(14)

The first inequality indicates that a takeover succeeds if cross shareholding does notexist. The second inequality means that a takeover does not succeed if cross15

shareholding exists. It is clear that both managers should agree on cross shareholding inorder to avoid a hostile takeover at date-0.

Proposition 3. Cross shareholding is agreed upon at date-0.

In the current setting, two firms possess cross shareholdings at the beginning, andthey maintain their cross shareholdings if the product market conditions are good (stateG), and they unwind their cross shareholdings if the product market conditions are bad(state B). Although cross shareholding and the unwinding of cross shareholding are bothmethods that can help prevent a hostile takeover, the two mechanisms of preventiondiffer. Cross shareholding prevents a takeover by increasing the cost of the takeover. On
the other hand, the unwinding of cross shareholding avoids a takeover by decreasing thevalue of the takeover.

5. When Each Firm Faces a Different State

This section addresses the case in which each of the two firms faces a different state.
Suppose that firm a faces state B and firm b faces state G at date-1. First, consider what
occurs at date-2. Let P2a(M, M; ch) denote the date-2 stock price of firm a under crossshareholding, under the condition that strategy M is undertaken by both firms. It follows
from (5) that
P2 ( M , M ; ch) =a

X B + αX G
.
1+α

(15)

Note that the date-2 value of a takeover for firm a is maximized when both firms
change their operating strategies from strategy M to strategy S. Let P2a(S, S) denote thedate-2 stock price of firm a, provided that both firms will change their strategies. It
follows from (5) and (8) that, regardless of whether cross shareholding is retained or
16

not,
P2 ( S , S ) =a

YB + αYG
−Z.
1+α

(16)

The date-2 takeover value for firm a in the above case is denoted by V2a(M, M; ch).
Then, the following relation is obtained.
V2 ( M , M ; ch) ≤ P2 ( S , S ) − P2 ( M , M ; ch) =aaa∆ B + α∆ G
− Z < ∆B − Z .
1+α

(17)

The last inequality follows from assumption (1). Since ∆B-Z<E under (2) and (10), no
takeover can succeed for firm a. By using a similar argument, it can be shown that atakeover does not succeed for firm b at date-2. These results imply that, underconditions of cross shareholding, both incumbent managers undertake strategy M at
date-2.
Next, consider what occurs at date-1. Suppose that cross shareholding exists, and atakeover occurs for firm a, but does not occur for firm b. In this case, a new manager is
employed in firm a and acts in support of the shareholders’ wealth. It is assumed that a
new manager would reconsider cross shareholding between date-1 and date-2. In
addition, it is assumed that
(1 + α ) Z < ∆ G .

(18)

If cross shareholding is retained, the incumbent manager of firm b chooses strategy M
because a takeover does not occur at date-2. Then, regarding the issue of theshareholders’ wealth, the new manager of firm a has no incentive to retain the crossshareholding with firm b. If she decides to unwind cross shareholding with firm b, thenthe incumbent manager of firm b has no choice but to choose strategy S at date-2. To
better clarify this point, let V2b(S, M; uw) denote the date-2 value of a takeover for firmb, provided firm a chooses strategy S, and the firm b chooses strategy M after the crossshareholding had been unwound. Note that a new manager of firm a always undertakes
17

strategy S. It follows from (8) and (18) that
V2 ( S , M ; uw) =b∆G− Z > 0.
1+α(19)

Since the cost of a takeover without cross shareholding is zero, the takeover occurs
for firm b if the incumbent manager chooses strategy M. In order to retain her position,
the manager of firm b will choose strategy S once the cross shareholdings are unwound.
Thus, the unwinding of cross shareholding increases the operating return of firm b, as
does the stock price of firm a. It is clear that a new manager of firm a will unilaterally
unwind cross shareholding before date-2.
Given the above arguments, the date-1 value of a takeover for firm a under conditionsof cross shareholding when firm a faces state G and firm B faces state G, denoted by
V1a(B, G), is given by
V1 ( B, G ) =a∆ B + α∆ G
.
1+α

(20)

A similar argument holds for firm b. That is, if a takeover succeeds for firm b at
date-1, then cross shareholding is unwound before date-2 and the manager of firm aundertakes strategy S (even if the manager is an incumbent). Then, the date-1 value of atakeover of firm b in this case, denoted by V1b(B, G), is given by
V1 ( B, G ) =b∆ G + α∆ B
.
1+ α

(21)

Since ∆G<∆B, V1b(B, G)<V1a(B, G) holds.
If V1b(B, G)<V1a(B, G)<E, then both incumbent managers can avoid takeovers at
date-1 by maintaining cross shareholding. In contrast, if E<V1b(B, G)<V1a(B, G), bothmanagers must unwind their cross shareholdings in order to avoid takeovers. As
discussed in the previous section, the unwinding of cross shareholdings becomes a18

credible signal that both managers will undertake strategy S.6
In the case of V1b(B, G)<E<V1a(B, G), while the manager of firm b can avoid atakeover by maintaining cross shareholdings, the manager of firm a cannot. In order toavoid a takeover, the manager of firm a has to discontinue cross shareholding andcommit to not undertake strategy M in the future. Since the unwinding of crossshareholding is unilateral, cross shareholding is unwound in this case. After theunwinding of cross shareholding, both managers will undertake strategy S. As a result,no takeover occurs at date-1. The same result holds when firm a faces state G and firm bfaces state B. Then, the following proposition can be obtained.

Proposition 4. Assume that each of two firms faces a different state at date-1. In thatcase, cross shareholding is maintained if∆ B + α∆ G
< E < ∆B .
1+α

(22)

On the other hand, cross shareholding is unwound if∆G < E <∆ B + α∆ G
.
1+α

(23)

Lastly, consider what happens at date-0. Suppose that both firms face state G with

6

To understand this point formally, consider a situation in which cross shareholding

had been unwound at date-1 and both incumbent managers are still in control at date-2.
It follows from (8) that the date-2 minimum value of a takeover of firm a is ∆B/(1+α)-Z,
and that of firm b is ∆G/(1+α)-Z. The cost of a takeover is zero because crossshareholding was unwound. Since 0<∆G/(1+α)-Z<∆B/(1+α)-Z under (18), bothmanagers will be replaced by takeovers if they undertake strategy M. In order to avoid
takeovers, both managers have no choice but to undertake strategy S.
19

probability θGG, both firms face state B with probability θBB, firm a faces state G andfirm b faces state B with probability θGB, and firm a faces state B and firm b faces state
G with probability θBG. Let V0j denote the date-0 value of a takeover of firm j∈{a, b}.
When (23) is satisfied, both managers undertake strategy M only if their firms both
face state G at the same time. Since 0<V0j=θGG∆G<E, both incumbent managers agree
on cross shareholding in order to avoid takeovers at date-0.
When (22) holds, both managers undertake strategy S only if both firms face state B;
otherwise they undertake strategy M. Therefore, for firm a,
V0 = θ GG ∆ G + θ BGa

∆ B + α∆ G
∆ + α∆ B∆ + α∆ G.
+ θ GB G< (1 − θ BB ) B
1+α
1+α
1+α

(24)

The last inequality holds because ∆G<∆B. It follows from (22) and (24) that 0<V0a<E.
Similarly, 0<V0b<E holds for firm b. Therefore, both managers agree on crossshareholding at date-0 as well.

6. Empirical Implications

6.1. Costs of Corporate Control and the Unwinding of Cross Shareholding

In the 1990s, cross shareholding among Japanese firms declined. During the same
period, Japanese financial markets experienced substantial deregulation, resulting in thedecreased cost of corporate control. Among a series of deregulations, the mostimportant one could affect the potential of corporate control might be the liberalizationof commissions on stock transactions. In 1994, commissions on stock transactions ofover 1 billion Yen were freed, and then in 1998, those of over 50 million Yen were freed.
Then, in 1999, fixed brokerage commissions were freed on stock transactions of allamounts. The liberalization of commissions on equity transactions directly lowered thecost of takeovers. In addition, in the process of the Japanese “Big Bang”, many other20

restrictions of financial markets were removed. According to an argument presented by
Gibson (2000, p.309), Big Bang deregulation could push the Japanese financial systemin the right direction by focusing on strengthening corporate governance. Thus, in the
1990s, corporate control through financial markets, represented by hostile takeover
activity, was becoming easy for outside shareholders.
At first glance, it may appear curious that corporate managers decided to unwind
cross shareholdings at a time when the costs of corporate control were relatively low.
The current model provides a plausible answer to this puzzle. That is, in this model,
entrenched managers have no choice but to unwind cross shareholdings (i.e., relinquish
their entrenchment) in order to retain their positions when the cost of a takeover
decreases compared to the value of a takeover. As shown in Section 4, the unwinding ofcross shareholding is a commitment that managers will not pursue their own interests atthe cost of the shareholders’ wealth. This commitment decreases the value of a takeover,so that no takeover occurs and managers can retain their positions. Thus, the present
model suggests that the lower the cost of a takeover, the more frequently crossshareholdings are unwound.
To understand this point formally, consider the situation analyzed in Section 4.
Suppose that the cost of a takeover without cross shareholding, C, is positive andsatisfies the following equation:∆G < E < ∆ B < C + E .

(25)

Since the cost of a takeover under conditions of cross shareholding, C+E, is larger thanits value, no takeover occurs, regardless of any managerial decision regarding the firm’s
operating strategy. In such a situation, both incumbent managers always maintain crossshareholdings and choose strategy M at date-2. In particular, cross shareholding is notunwound, even after state B is realized.
Suppose that the deregulation of financial markets decreases C to zero. As shown in

21Section 4, cross shareholding is unwound in state B when C=0. Thus, as the cost of atakeover decreases, cross shareholding is likely to be unwound. This scenario accounts
for why cross shareholdings among Japanese firms have declined at a time when the
deregulation of financial markets has been promoted.

6.2. Firm Profitability and Stock Price Behavior

The present model predicts that cross shareholdings are not desirable in terms of firm
profitability. This is because cross shareholding can weaken pressures from corporate
control markets, such that managers tend to pursue their own interests at the cost of theshareholders’ wealth. The tighter the cross shareholding is, the less profitability a firm
will experience. Empirically, Nakatani (1984), Prowse (1992), Douthett and Jung (2001),
and Ang and Constand (2002) found that, on average, the profitability of keiretsu firms
is lower than that of non-keiretsu firms. Nakatani (1984) and Ang and Constand (2002)
also found that the average growth rate of a firm’s operating performance is lower forkeiretsu members than for non-keiretsu members. In particular, the study of Ang andConstand (2002) covered a period that included 1984 -1997, and therefore both thelower profitability and the slower growth rate of keiretsu firms were long-term. Sincecross shareholdings among keiretsu firms are tighter than those of non-keiretsu firms,
these findings are consistent with the predictions made by the present model.
With regard to stock price behavior, the present model predicts that stock prices willrise in response to news of the unwinding of cross shareholdings. In the present model,
as suggested by Proposition 2 and Proposition 4, the unwinding of cross shareholdings
is a signal that managers will pursue the shareholders’ wealth in the future.

6.3. Cross Shareholding and Self-Shareholding as an Entrenchment Device

22

Japanese firms have been prohibited from possessing their own shares as treasury
stocks. However, the 2001 revision of Commercial Law enabled firms to possesstreasury stocks. Now, managers of Japanese firms can engage in self-shareholding aswell as in cross shareholding as an entrenchment device.7 The present model provides
insights regarding the difference between cross shareholdings and self-shareholdings(i.e., possessing treasury stocks) as a financial instrument for managerial entrenchment.
Suppose that each firm uses self-shareholding as an anti-takeover device. For
example, a firm can own α fraction of its own shares by issuing and repurchasing nshares at the same time. Then, it follows from the results in Section 4 that each firmholds its own shares at the beginning, maintains self-shareholding in state G, andrelinquishes self-shareholding in state B. Therefore, the incumbent manager of a firm
can achieve her best outcome, undertaking strategy M without takeover, with probability

θ under conditions of self-shareholding. On the other hand, it follows from Proposition
4 that a manager of a firm can achieve the best outcome with probability θGG+θGB+θBG
when (22) holds, and with probability θGG when (23) holds.
Consider the situation in which each manager chooses self-shareholding as well as
cross shareholding. Since θ≥θGG and 1-θ≥θBB, it is clear that cross shareholding is abetter entrenchment device when (22) holds. On the other hand, self-shareholding is abetter entrenchment device when (23) holds. In the former case, cross shareholding ispreferable to self-shareholding because the incumbent manager can undertake strategy
M as long as the other firm experiences state G. For example, suppose that firm a faces
state B and firm b faces state G. While the manager of firm a must give up
self-shareholding and undertake strategy S under conditions of self-shareholding, she

7

Stulz (1988) has shown that an increase in the fraction of shares controlled bymanagement (e.g., treasury stocks) decreases the probability of the occurrence of ahostile takeover.
23

can undertake strategy M under conditions of cross shareholding. This is because thevalue of a takeover under conditions of cross shareholding is smaller than the value of atakeover under self-shareholding. In other words, the stock price under crossshareholding is larger than the stock price under self-shareholding. The manager of firma can avoid an extreme stock price decline by investing in firm b. This effect can beinterpreted as a cross shareholdings diversification effect. Nakatani (1984) and Douthettand Jung (2001) have found that keiretsu firms perform in more stable manner than do
independent firms.
Equations (22) and (23) show under what conditions a firm tends to choose crossshareholding rather than self-shareholding. First, when the cost of a takeover, E, islarger (smaller), a firm will tend to choose cross shareholding (self-shareholding).
Second, note that∆B −∆ B + α∆ G α (∆ B − ∆ G )
.
=
1+α
1+α

(26)

Then, all other things being equal, it can be concluded that the larger the α, the larger
the set of parameters satisfying (22). Under such parameters, a firm chooses crossshareholding. When a firm has more cash in hand, it can buy more shares issued byother firms. When initial managerial entrenchment (or discretion) is greater, themanager can use more free cash to obtain other firms’ shares. The present model
predicts that a firm belonging to such a category will prefer cross shareholding to
self-shareholding.

7. Conclusion

This paper proposes a motivation for corporate management to possess crossshareholdings and, in particular, to unwind cross shareholdings. While crossshareholding enhances managerial entrenchment and insulates corporate management24

from the potential threat of a takeover, the increased agency spending associated withmanagerial entrenchment increases incentives for a hostile takeover. In particular, when
the cost of a takeover is relatively small compared to its value, maintaining crossshareholding leads to managerial opportunistic behavior, and a hostile takeover canoccur. In order to avoid a takeover, corporate management must commit to not behaving
opportunistically by unwinding cross shareholding. Since the unwinding of crossshareholding is a credible signal that management will pursue the shareholders’ wealthin the future, the stock price of a firm will increase, and a takeover will not occur.
The present model accounts for why Japanese firms have unwound crossshareholdings at a time when the Japanese financial markets experienced substantial
deregulation, resulting in a decrease in the cost of corporate control.
In this paper, it is assumed that cross shareholding decreases the effectiveness of firm
performance, because managements under conditions of cross shareholding may protect
each other in the markets for corporate control and pursue their own interests at theshareholders’ expense. In such a situation, if the shareholders practice discretion withregard to the firms’ financial policy, it is agreed upon that no cross shareholding willtake place. From this perspective, it can be seen that corporate financial policy,
including the ownership structure itself, creates a conflict between management andshareholders.
[2002.10.18 631]

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28

Takeover（0, ∆G-E)

Strategy S
Change to Strategy S
Takeover

T1
Strategy M
Cross Shareholding

No Takeover

T2（A+B, 0）No Takeover

M2
State G（0, ∆G-Z-E）

Strategy S

M1

Unwinding

Takeover（A, 0）(0, ∆G)

Strategy S
Change to Strategy S

Cross Shareholding

T1

Strategy M
No Takeover

Takeover（0, ∆G-Z）

No Takeover（A+B, 0）T2

M2
Strategy S（A, 0）

Figure 2: A Decision Tree in State G
M1 is the date-1 manager’s decision stage regarding cross shareholding, T1 is the date-1 takeover stage, M2 is the date-2 manager’s decision stage
regarding firm’s operating strategy, and T2 is the date-2 takeover stage. The first term in parenthesis at terminal nodes is the incumbent manager’s
payoff, and the second one is the net value of a takeover (value minus cost). The net value of a takeover is zero if no takeover occurs. All bold lines
represent the equilibrium outcome at each stage.

Takeover（0, ∆B-E)

Strategy S
Change to Strategy S
Takeover（0, ∆B-Z-E）

No Takeover（A+B, 0）

T1
Strategy M
Cross Shareholding

No Takeover

M2
State B

T2

Strategy S

M1

Unwinding

Takeover（A, 0）(0, ∆B)

Strategy S
Change to Strategy S

Cross Shareholding

T1

Strategy M
No Takeover

Takeover（0, ∆B-Z）

No Takeover（A+B, 0）T2

M2
Strategy S（A, 0）

Figure 3: A Decision Tree in State B
M1 is the date-1 manager’s decision stage regarding cross shareholding, T1 is the date-1 takeover stage, M2 is the date-2 manager’s decision stage
regarding firm’s operating strategy, and T2 is the date-2 takeover stage. The first term in parenthesis at terminal nodes is the incumbent manager’s
payoff, and the second one is the net value of a takeover (value minus cost). The net value of a takeover is zero if no takeover occurs. All bold lines
represent the equilibrium outcome at each stage.

Discussion Paper
No.
2001･1

AuthorTakashi Hatakeda
Nobuyuki Isagawa

2001･2Michiyasu Nakajima
Takeshi Mizuguchi
Katsuhiko Kokubu
Yasushi Onishi
Koji Okubayashi

2001･3
2001･4

2001･5
2001･6
2001･7

2001･8

2001･9Katsuhiko Kokubu
Akihiro Noda
Yasushi Onishi
Tomomi Shinabe
Kunio Miyashita
Akinobu Sakashita
KOKUBU,
Katsuhiko
NASHIOKA, ErikoDAIKUHARA, Rie
KOKUBU,
Katsuhiko
KURASAKA,
TomokoShuzo Murata

2001･11

Makoto Yano
Fumio Dei
Mahito Okura

2001･122001･13

Mahito Okura
Shuzo Murata

2001･14

Koji Okubayashi
Toshinori Takashina

2001･15
2001･16

Takuji Hara
Shuzo Murata

2001･17

Norio Kambayashi

2001･18
2001･19
2001･20

Yuichi Fukuta
Kazuhiro Tanaka
Kentaro Nobeoka
Kazuhiro Tanaka

2001･21

Mahito Okura

2001･22
2001･23

Kazuhiro Tanaka
Mahito Okura

2001･24

Katsuhiko Kokubu
Akihiro Noda
Yasushi Onishi
Tomomi Shinabe
Akira Higashida

2001･10

Title
Stock Price Behavior Surrounding Repurchase
Announcements:
Evidence from Japan
Material Flow Cost Accounting of IMU (October 2000)

Date
1／2001(in Japanese)

1／2001

Japanese Manufacturers Without Factories:
Cases of Sony, Matsushita, Misumi, People
Determinants of Environmental Report Publicationin Japanese Companies

1／2001

Logistics Strategy of Japanese Port Management
Issues and Method of Organizational Culture Studies:
Functionalism Approach
Environmental Accounting in Japanese Companies as ofNovember 2000

(in Japanese)

2／20013／2001(in Japanese)

3／20012／2001

Corporate Environmental Accounting: A Japanese
Perspective

The Comparative Study of Japanese & U.S. Companies(6) The Health & Long Term Care-The Management
Education
A Trade Model with Vertical Production Chain andCompetition Policy in the Downstream Sector
Risk Classification: A Study of the Tradeoff between
Quantity and Quality of Insured
Is the Separating Equilibrium Really Desirable?
The Comparative Study of Japanese & U.S. Companies(5) The Conflict Among Companies
Research Report on the relations between there-employment process and former job career at thecompulsory retirement of workers of a firm
The Social Shaping of Medicines
The Comparative Study of Japanese & U.S. Companies(7) Toward Restructuring Japanese Corporations
Cultural influences on IT usage among workers:a UK-Japanese comparison
A Test for Rational Bubbles in Stock Prices
Toward the Effective Reform of Japanese Corporate
Governance
Structural Changes in Top Management―The Effect ofCorporate Governance Reform in Japan
In the Separating Equilibrium Really Desirable ?
―revised version of No.2001･12―
Introduction to Corporate Governance
The Role of Some Insurance Contracts in a Subjective
Equilibrium Model with Observable Effort
Environmental Disclosure of Japanese companies

3／2001(in Japanese)

4／2001

12／2000(in Japanese)

5／2001(in Japanese)(in Japanese)

5／20016／2001(in Japanese)

7／2001(in Japanese)(in Japanese)

7／20017／20017／2001(in Japanese)

7／20017／2001(in Japanese)

7／2001(in Japanese)

8／2001(in Japanese)(in Japanese)

8／20018／2001(in Japanese)

8／2001

Discussion Paper
No.
2001･25

2001･26
2001･27

AuthorKatsuhiko Kokubu
Tomomi Shinabe
Akira Higashida
Yasushi Onishi
Akihiro Noda
Katsuhiko Kokubu
Eriko Nashioka
Masakazu Takagi

2001・28 Mahito Okura
2001・29 Atsushi Takao

2001・30 Mahito Okura
2001・31 Masakazu Takagi
2001・32 Norio Kambayashi
Harry Scarbrough2001・33 Fumitoshi Mizutani
Shuji Uranishi
2001・34 Mahito Okura

2001・35 Tsutomu Harada
2001・36 Nobuyuki Isagawa

2001・37 Nobuyuki Isagawa
2002・1

Nobuyuki Isagawa

2002・2

Nobuyuki Isagawa

2002・3Mahito Okura

2002・4

Elmer Sterken
Ichiro Tokutsu
Mahito Okura
Mahito Okura
Nobuyuki Isagawa
Koji Okubayashi
Toshinori Takashina

2002・5
2002・6
2002・7
2002・8

2002・9Hajime Shimizu

2002・10 Nobuyuki Isagawa
2002･11

Nobuyuki Isagawa

Title
Environmental Reporting of Japanese companies(in Japanese)

Date
8／2001

Environmental Accounting of Japanese companies(in Japanese)

8／2001Elementary Study of East Asian Corporate andManagement System
Vertical Differentiation in the Insurance Market
A Study on the Penetration Process of Modern Insurance
by Evolutionary Economics―Why do the Modern
Insurance and the Premodern Mutual Society coexist?―
An Essay in the Economics of Post-loss Minimisation:
An Analysis of the Effectiveness of the Insurance Law
and Clauses
Co-operation between Hanshin(Osaka-Kobe) Area andSouth-east Asia-Finding business opportunities of mutual
benefits
Cultural influences on IT use amongst factory managers：
A UK-Japanese comparison
The Post Office vs. Parcel Delivery Companies：
Competition Effects on Costs and Productivity
An Essay in the Economics of Post-loss Minimisation:
An Analysis of the Effectiveness of the Insurance Law
and Clauses―revised version of No.2001・30―
An Examination of IT Paradox in Japan
Open-Market Repurchase Announcements, Actual
Repurchases, and Stock Price Behavior in Inefficient
markets
Corporate Financial Strategy and Stock Price Behavior ina Noise Trader Model with Limited Arbitrage
Cross Holding of Shares, Unwinding Cross Holding of
Shares, and Managerial
Entrenchment
A Theory of Stock Price Behavior following Repurchase
Announcements
An Equilibrium Analysis of the Insurance Market
with Vertical Differentiation
What are the determinants of the number of bankrelations of Japanese firms?
Review Article：Adverse Selection in Insurance Market
Welfare Effect of Firm Size in Insurance Market
Does Investment Horison Affect Investment Strategy ?
Research Report of Careers and Employment Process ofWorkers over 60 years old :a Case of a Japnaese
Manufacturing Company
On the Existence of Tax Equilibrium : Incomplete Market
with Capital Income Tax
Cost of Financial Distress and Debt Restructuring :Debt Forgiveness and Equity-for-Debt Swap
Open-Market Repurchase Announcements, Actual
Repurchases, and Stock Price Behavior in Inefficient
Markets―revised version of No.2001･36―

9／2001(in Japanese)(in Japanese)

9／20019／20019／2001(in Japanese)

9／2001

10／2001
10／2001
11／2001(in Japanese)

11／2001
12／2001
12／2001(in Japanese)

1／ 2002(in Japanese)

1／ 20022／20023／2002(in Japanese)(in Japanese)(in Japnaese)

3／20023／20023／20024／2002(in Japnaese)

4／2002(in Japnaese)

4／20025／2002

Discussion Paper
No.
2002･12

AuthorKenji Kutsuna
Richard Smith

2002・13 Kunio Miyashita
2002・14 Hajime Shimizu
2002・15 Hajime Shimizu
2002・16 Koji Okubayashi
2002・17 Fumitoshi Mizutani
Shuji Uranishi
2002・18 Kazuhisa Otogawa
2002・19 Atsuo Takenaka
2002・20 Tsuneo Nakano

2002・21 Tsuneo Nakano
2002・22 Fumitoshi Mizutani
Shuji Uranishi
2002・23 Atsushi Takao
Mahito Okura
2002・24 Fumitoshi Mizutani
2002・25 Fumitoshi Mizutani
Takuya Urakami
2002・26 Yasuyuki Miyahara
2002・27 Nobuyuki Isagawa

Title
Why Does Book Building Drive Out Auction Methodsof IPO Issuance?
Evidence and Implications from Japan
International Logistics and Modal Choice
Incomplete markets with capital income tax and public
goods
On the possibility of Pareto improving of tax-equilibrium
China-Japan Comparison of Work Organization
The Post Office vs. Parcel Delivery Companies:
Competition Effects on Costs and Productivity―revised version of No.2001･33―
Earnings Forecast and Earnings Management of JapaneseInitial Public Offerings Firms
The Classification of Foreign R&D Units
The Dutch East India Company and its Corporate
Governance―revised version of No.2000･40―
The British East India Company and its Corporate
Governance
Privatization Effects on TFP Growth and Capital
Adjustments
Some Notes on the Privatization of Postal Life Insurancein JapanPrivately Owned Railways’ Cost Function, Organization
Size and Ownership
A Private-Public Comaprison of Bus Service Operators
Principal-Multiagent Relationships with Costly
Monitoring
Unwinding of Cross Shareholding under Managerial
Entrenchment

Date
5／2002(in Japnaese)(in Japnaese)

6／20026／20026／20027／20027／20028／2002(in Japanese)(in Japanese)

8／20028／2002(in Japanese)

8／20028／2002(in Japanese)

9／20029／20029／2002
10／2002
10／2002