Institutional cross-holdings and their effect on acquisition decisions |
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Authors: | Jarrad Harford Dirk Jenter Kai Li |
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Affiliation: | 1. Foster School of Business, University of Washington, Seattle, WA 98195-3200, USA;2. Stanford University and NBER, Graduate School of Business, 518 Memorial Way, Stanford, CA 94305-5015, USA;3. Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, BC V6T 1Z2, USA |
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Abstract: | 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. |
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Keywords: | G30 G34 |
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