Why do firms want to prevent hostile takeover

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Case: Prior to WWII, Japan's economy was dominated by many family-owned firms, e.g., Mitsui, Mitsubishi and Daichi. However, after the law enacted during U.S. army occupation of Japan in the 1940's that restricted share ownership of large shareholders in listed companies, none of the Japanese listed firms was controlled by a family like those in other Asian countries.

Nonetheless, Japanese listed firms started to organize themselves as Keiretsu, by holding each other's shares (cross shareholding) in the late 1950's and 1960's. Why do they do that?

Question 1: How can this ownership structure prevent hostile takeover?

Question 2: Why do firms want to prevent hostile takeover? Is it a form of agency problem? Can you think of any possible good reasons for this corporate structure?

Reference no: EM133237689

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