The Present Status of Unwinding of Cross-Shareholding - The Fiscal 2000 Survey of Cross-Shareholding

Fumiaki Kuroki

Introduction

As the Nikkei Average continues to plunge to new lows， raising concerns about the impact on thefinancial system， the structure shareholding is weakening centered around cross-shareholding. Thecausal relationship between the unwinding of cross-holdings and the weak stock market is not alwaysclear. However， the initiation of mark-to-market accounting for cross-shareholdings (starting withSeptember’s interim results for most companies) is expected to stimulate unwinding， and the prospectof a massive flotation of stocks has understandably put market participants on edge.

The market environment is also important to companies seeking to unwind cross-holdings and concernedabout whether stock prices will cause realized gains or losses， and to what extent the presenceof buyers will alleviate the market impact at the time of sale. In fiscal 1999， unwinding occurred undera favorable environment due to the strong stock market and active inflow of funds from foreign andinstitutional investors.

Given the market’s deterioration in fiscal 2000 (although less severe than in fiscal 2001)， this paperexamines how companies fared in their attempt to unwind cross-shareholdings. Below we analyze theresults of the Fiscal 2001 Survey of Cross-Shareholding.