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Cross-Ownership: A Device for Management Entrenchment?

Author

Listed:
  • Marc Levy
  • Ariane Szafarz
Abstract
By artificially inflating capital and creating own shares, cross-ownership can be a key device for managerial entrenchment. This paper proposes a game-theoretical method to measure the extent of shareholder expropriation through cross-ownership. By properly accounting for cross-ownership linkages, we show how managers can seize indirect voting rights, and so insulate their firms from outside control. Significant examples of cross-ownership are found not only in civil law countries, but also in the U.S. mutual fund industry. We apply our method to Germany’s Allianz Group. This paper paves the way to better regulatory appraisal of management entrenchment through cross-ownership.

Suggested Citation

  • Marc Levy & Ariane Szafarz, 2016. "Cross-Ownership: A Device for Management Entrenchment?," Working Papers CEB 16-009, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/224890
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate governance; corporate control; cross-ownership; shareholder expropriation; Allianz Group;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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