Enactment of Restriction on Cross-Shareholding and Managerial Reactions

This study empirically evaluates the controlling shareholders’ reaction to the enactment of the American pattern of corporate governance system. Government policy makers may intervene in the market for corporate control to improve on corporate governance. We try to examine whether corporate sectors follow the intent of the governance reforms act. The results show that fixed asset growth rate does not differ between firms that are restricted from cross-shareholding and firms that are not restricted. And fixed asset growth rate is positively associated with foreign investors’ equity holding. These findings suggest that government regulation did not affect the capital investment behavior for firms controlled by dominant shareholders. However we found that stock return performance is poorer for regulated firms than for unregulated firms. The result means that enactment produced any differences in new capital investment level between regulated firms and unregulated firms