Cross-corporate ownership, information asymmetry and the usefulness of accounting performance measures in Japan

Using a large sample of Japanese firms, this paper examines the informational role of cross-corporate, interlocking ownership in Japan. We hypothesize that as the level of cross-corporate ownership increases, there will be less information asymmetry between the firm and market participants, and thus, stock prices of firms with high cross-corporate shareholdings incorporate information about future profitability earlier than do stock prices of firms with low cross-corporate shareholdings. Results of various tests strongly support the hypothesis, suggesting that cross-corporate shareholdings are an important institutional factor that alleviates the information asymmetry in the Japanese equity market.