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Cross OwnershipCross ownership is a method of reinforcing business relationships by owning stock in the companies with which a given company does business. Some countries where cross ownership of shares is a major part of the business culture are: Positives of cross ownership: - Closely ties each business to the economic destiny of its business partners
- Promotes a slow rate of economic change
Cross ownership of shares is criticized for: - Stagnating the economy
- Wasting capital that could be used to improve productivity
- Expanding economic downturns by preventing reallocation of capital
A major factor in perpetuating cross ownership of shares is a high capital gains tax rate. A company has less incentive to sell cross owned shares if taxes are high because of the immediate reduction in the value of the assets. For example, a company owns $1000 of stock in another company that was originally purchased for $200. If the capital gains tax rate is 50% (like Germany) and the company sells the stock, the company has $600 which is 40 percent less than before it sold the stock. Long term cross ownership of shares combined with a high capital tax rate greatly increases periods of asset deflation both in time and in severity.
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