Mutual Shareholding and Unwinding of Mutual Shareholding as Stockpile for Business Recovery

Mutual Shareholding has long been a prominent future of Japanese corporate finance. Since the 1990s, many Japanese firms have been unwinding mutual shareholdings during the restructuring process. This paper provides a simple model in which firms decide to practice mutual shareholding in consideration of the possibility that in the future, they will unwind mutual shareholding. Mutual shareholding is a means of fund stockpiling in the sense that firms agree on the unwinding of mutual shareholding when they need to raise additional funds for recovering business. In particular, mutual shareholding is an effective means of a stockpile for business recovery in the case of firms whose returns have low correlations. The present model provides several implications with regard to mutual shareholding and the unwinding of mutual shareholding