(Bloomberg) -- An investor group representing asset managers including BlackRock Inc. and Fidelity International is calling on Japanese firms to abolish cross-shareholdings, saying the long-held practice has a “detrimental impact” on companies’ capital efficiency.

Companies should set reduction targets and improve diclosure in these holdings, the Asian Corporate Governance Association (ACGA) said in the open letter on Friday. Firms should also declare that any selling by corporate shareholders will not be met by a loss of benefit, including termination of contract, with the seller, the group said.

While there’s been some reduction of so-called “strategic shareholdings”, in which companies hold stocks of other firms with business ties, the progress has been slow, particularly those outside of the financial sector, ACGA said.

ACGA joins a growing force of the country’s regulator and a growing number of investors demanding an end to the practice that has been criticized as undermining discipline in corporate governance and leading to anti-competitive behavior. The Japanese government has also urged companies to reduce such shareholdings, requiring companies to review whether such holdings can be justified.

The group mainly consists of asset management firms and pension funds in Asia with a combined assets under management of more than $40 trillion.

©2024 Bloomberg L.P.