Value, Ownership, and Equity Linkages

Abstract

In several industrialized countries, e.g. Japan, Italy and France, large quoted firms are connected through cross-shareholdings. Interlocking shareholding is not only a feature of corporate ownership, it is also an essential part of corporate governance in continental Europe and in Japan, and for this reason has attracted considerable interest in recent years. In many cases these ownership links are associated with the phenomenon of business group, i.e. a set of legally independent firms which are connected through shareholdings to achieve some form of coordination in running the business operations. There are essentially two types of business group (though the two forms of industrial organization sometimes overlap): The first (the hierarchical group) is common in continental Europe and is characterized by a pyramidal structure with a parent holding company on the top. Monitoring and decision-making are organized hierarchically and the firms of the group act as a single firm under the control of one main investor. The second (the associative group), particularly popular in Japan with the name of keiretsu ³⁵, consists of a number of firms based in different industries connected through equity linkages. Coordination of activities is obtained through more or less informal mechanisms, information exchanges and tacit rules of conduct.