Institutional cross-holdings and their effect on acquisition decisions
Cross-holdings are created when a shareholder of one firm holds shares in other firms as well, and cross-holdings alter shareholder preferences over corporate decisions that affect those other firms. Prior evidence suggests that such cross-holdings explain the puzzle of why shareholders allow acquisitions that reduce the value of the bidder. Conducting a shareholder-level analysis of cross-holdings, we instead find that cross-holdings are too small to matter in most acquisitions and that bidders do not bid more aggressively even in the few cases in which cross-holdings are large. We conclude that cross-holdings do not explain value-reducing acquisitions. Beyond acquisitions, we find that institutional cross-holdings between large firms have, in fact, increased rapidly over the last 20 years, but mostly due to indexing and quasi-indexing. As in acquisitions, cross-holdings by active investors are typically too small to matter.
Year of publication: |
2011
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Authors: | Harford, Jarrad ; Jenter, Dirk ; Li, Kai |
Published in: |
Journal of Financial Economics. - Elsevier, ISSN 0304-405X. - Vol. 99.2011, 1, p. 27-39
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Publisher: |
Elsevier |
Keywords: | Cross-holdings Institutional investors Mergers and acquisitions Shareholder preferences Value-reducing acquisitions |
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