TOKYO -- Listed companies in Japan sold 8.89 trillion yen ($56.2 billion) in cross-shareholdings in the fiscal year ended March, the second-highest amount on record.

The sell-offs come amid investor pressure to improve capital efficiency and corporate governance reforms, with attention now turning to whether companies will put the proceeds toward growth investments and shareholder returns or let the cash pile up. "It's important for investors and companies to deepen their dialogue, including on whether such holdings are justified, in order to enhance corporate value," said Kengo Nishiyama, senior analyst at Nomura Institute of Capital Markets Research.

Nikkei reviewed securities reports from about 2,300 listed companies with fiscal years ending in March.

Roughly 1,700 owned cross-shareholdings, including those owned through subsidiaries. There were 29,343 such holdings, down 30% from three years earlier. Banks and insurers logged particularly large sales.

Banks sold 2.3 trillion yen worth of shares, roughly the same amount as last year. Insurers sold 1.98 trillion yen, down 140 billion yen from a year earlier, but four times the level of three years prior. Together, the two sectors accounted for half of all cross-shareholding sales by listed companies.

Insurance company Tokio Marine Holdings sold the most of any company, unloading 740 billion yen worth of shares in the year ended March. It plans to use the proceeds for overseas mergers and acquisitions and other purposes.

The company aims to reduce its cross-shareholdings to zero by the end of fiscal 2029. Kyocera sold three holdings, including shares in telecom carrier KDDI, for 250 billion yen.

It plans to cut cross-shareholdings to less than 20% of net assets by the end of the fiscal year ending March 2031. Electronics maker Ibiden sold 56.9 billion yen worth of shares in Toyota Industries, which went private.

It used the proceeds to fund investment in increased production of package substrates for integrated circuits that are in demand thanks to the spread of artificial intelligence. The Toyota group is reviewing and reducing cross-shareholdings. In the year ended March, the group, which includes Toyota Motor and auto parts maker Denso, reduced such holdings by more than 930 billion yen Independent auto parts maker NOK, which established the joint holding company NOK Group with Eagle Industry on Oct. 1, sold about 38 billion yen in cross-shareholdings. "We will review our policy on cross-shareholdings and improve capital-efficiency indicators set out in our medium-term business plan," said Chief Financial Officer Chikashi Takeda.

Among general contractors, Obayashi sold 20 holdings, including shares in engineering group IHI and insurer T&D Holdings, for 65 billion yen. Fellow construction company Taisei sold 43 holdings for 27.9 billion yen, reducing the companies in which it owns cross-shareholdings to 62. That is half the level of three years earlier.

According to a fiscal 2025 survey released by the Tokyo Stock Exchange and others, the reduction in cross-shareholdings lowered the share of Japanese equities held by other businesses by 1 percentage point on the year to 17.7%. As individuals and foreign investors increase ownership, the relative importance of corporations as stable shareholders is declining.

Cross-shareholdings represented 27.7% of the market capitalization of listed shares in fiscal 2025, down 1.7 points from the previous year, according to Nomura Institute of Capital Markets Research.

Investors have criticized cross-shareholdings for drawbacks such as enabling unprofitable business relationships to continue without sufficient scrutiny and weakening corporate governance as companies effectively become passive shareholders for one another. Asset managers are tightening their voting guidelines regarding companies with such holdings.

Nomura Asset Management, in principle, votes against the reappointment of chairpersons, presidents and other top executives when a company's cross-shareholdings are at least 15% of invested capital. The threshold was previously 20%, but Nomura tightened the standard last November. Nippon Life Asset Management treats shares reclassified as pure investments as de facto cross-shareholdings unless the company discloses plans to sell them or takes similar steps.

The Topix index, which will be revamped at the end of October, will use the market capitalization of freely tradable shares as a criterion for selecting constituents. Cross-shareholdings, in principle, are not considered as free float. Unwinding cross-shareholdings and bringing in new investors from the market could increase companies' free-float market cap, potentially speeding up reductions in such holdings.