Submitted by: Submitted by lini
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Date Submitted: 10/29/2012 09:30 AM
Shareholder Cross-holdings and Their Effect on Acquisition
Decisions*
Jarrad Harford
University of Washington†
Dirk Jenter
Stanford University and NBER‡
Kai Li
University of British Columbia§
First Draft: June 2006
This Version: March 2008
Abstract: We document the magnitude and determinants of institutional shareholder crossholdings. Cross-holdings are created when a shareholder of one firm holds shares in other firms
as well. We find that institutional cross-holdings have risen rapidly over the last twenty years.
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. Further, we examine the influence of these cross-holdings on bidder managers’
selection of acquisition targets. Some institutional investors of the bidder have large crossholdings in the target in an average acquisition, and there is a significant number of deals in
which a majority of bidder institutions does. There is strong evidence that bidder managers
consider their shareholders’ cross-holdings when choosing targets. We conclude that shareholder
cross-holdings are sizeable and, at least in the case of acquisitions, affect managerial decisions.
Keywords: cross-holdings, institutional investors, target selection, mergers and acquisitions,
toeholds
JEL classification: G30, G34
*
We thank Nittai Bergman, Murray Carlson, Alex Edmans, Adlai Fisher, Ron Giammarino, Jon Karpoff, Alan
Kraus, Kalina Manova, Gregor Matvos, Wayne Mikkelson, Pablo Moran, Hernan Ortiz-Molina, Michael Ostrovsky,
Jon Reuter, Frederik Schlingemann, Jeremy Stein, Hongping Tan, Ralph Walkling, and seminar and conference
participants at Bentley College, Boston College, the Chinese University of Hong Kong, the City University of Hong
Kong, Concordia, the Hong Kong University of Science and Technology, the MIT finance lunch, Rutgers
University, Simon Fraser...