ARIKAWA Yasuhiro/KATO Atsushi
Cross shareholding that makes takeovers difficult is not necessarily harmful to shareholders due to initiative effects. As long as manager's private benefits are to some extent in line with shareholders' benefits, cross shareholding may benefit shareholders. Cross shareholding is more likely to occur as the congruence of interests between managers and shareholders rises, the manager's private benefits becomes greater, the manager's reservation utility gets lower, and shareholders' pie in the case of a takeover becomes smaller. Due to a lack of monitoring, the corporate value of a firm tends to be smaller in cross shareholding. However, if we include managers' private benefits in social welfare function, it is possible that the social welfare is higher in cross shareholding.