Shareholder Cross-holdings and their Effect on Acquisition Decisions



We document the magnitude and determinants of shareholder cross-holdings in samples of merging and non-merging firms. Further, we examine the influence of these cross-holdings on bidder managers' selection of acquisition targets.  We find large cross-holdings by some institutional shareholders and by a majority of institutional shareholders in a significant number of deals.  Shareholder cross-holdings are higher the more alike two firms are on a number of dimensions, such as size and performance, suggesting that institutional investing screens result in common holdings in similar firms. There is strong evidence that bidder managers consider their shareholder cross-holdings when identifying potential targets, and that they weigh cross-holdings more heavily when their shareholders have greater influence.  We conclude that shareholder cross-holdings are sizeable and, at least in the case of acquisitions, affect managerial decisions.
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Ingolf Dittmann