Cross-Ownership Of Firms Case Study

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Cross-ownership of firms is one way to strengthen business relations between firms, even if they are competing in the same industry. This study’s purpose, conducted by “Jie He & Jeikun Huang,” is to analyze whether institutional cross-ownership of same industry firms affects product market behavior and how it does so. The main focus of the study is on institutional block holders, their role in cross-ownership of firms, and how they can be beneficial factors in these cross-held firms’ product market share through different mechanisms. According to “Farlex” financial dictionary, these institutional block holders are shareholders/investors with an exceptionally large amount or value of stock. These investors could be organizations that invest or manage assets, such as mutual funds and holding companies. In this study, a block is defined as when the holding (institutional investment) exceeds five percent of a company’s equity. A cross- holding occurs when a given institution simultaneously holds more than one block in the same four-digit- SIC industry (page 7).Throughout the study, there are two main hypotheses tested to determine the relation between block holders of cross-held firms and market share growth. The first hypothesis states that firms cross-held by institutional block holders experience a significantly higher market share growth relative to similar non-cross-held firms. Also, the study hypothesizes that cross-ownership of firms by institutional block holders offers strategic benefits by fostering product market coordination, and that coordination should be more likely and more effective in industries that require a greater extent of strategic interactions. The authors use several strands of existing literature to rela... ... middle of paper ... ... an advantage of a higher profit margin to cross-held firms. (Table 7 Panel C) 4- Portfolio Performance: the results showed a 1.9 percentage point advantage in one-year buy and hold abnormal returns on cross-held portfolios (Table 8). In conclusion, the study shows that cross proprietorship by institutional block holders offers vital profits by encouraging product market coordination between firms. By identifying a causal relationship between cross ownership and product market outcomes and investigating potential components, this study has critical ramifications for studies on the collaboration of firms’ proprietorship/authoritative structure and the behavior of their product markets. It also highlights the point that any future studies on product market competition ought to deliberately analyze firms' internal relations through the ownership of common equity.

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