Revisiting the Issue of Cross-Shareholding
(From "Developing the Research Frontier in Corporate Governance Analysis")
Professor, Institute of Economic Research, Kyoto University
Three patterns of partial ownership
The pros and cons of cross-shareholding among Japanese companies have been hotly debated recently in the context of their role as a defense against hostile takeovers. Partial ownership is an arrangement in which a nonfinancial company (hereinafter referred to simply as "company") holds a portion of shares in another company. The practice, however, is not unique to Japanese companies and can be observed in countries throughout the world, including the United States.
There are three patterns of partial ownership:
1) Mutual or unilateral shareholding between companies in a strategic partnership. This type of partial ownership is typically observed in cases where one company supplies products or services to the other and, in that context, can be defined as "vertical partial ownership."
2) Mutual or unilateral shareholding between companies in a competitive relationship in the same industry. This type of partial ownership concerns companies that compete with each other within the same industry and can be defined as "horizontal partial ownership."
3) Mutual or unilateral shareholding between companies having no or only a minimal business relationship between one another. This type of partial ownership concerns companies that are respectively engaged in business unrelated to that of the other, and can be defined as "conglomerate partial ownership."
Cases of partial ownership
Now, take a look at some specific cases for each of the three types of partial ownership.
( for full text )
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