Cross ownership is a method of reinforcing business relationships by owning stock in the companies with which a given company does business. Heavy cross ownership is referred to as circular ownership. In the US, "cross ownership" also refers to a type of investment in different mass-media properties in one market.
Cross ownership of stock
Some countries where cross ownership of shares is a major part of the business culture are:
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 gainstax rate is 25% and the company sells the stock, the company has $800 which is 20 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.
Media cross ownership
Cross ownership also refers to a type of media ownership in which one type of communications owns or is the sister company of another type of medium. One example is The New York Times 's former ownership of WQXR Radio and the Chicago Tribune's similar relationship with WGN Radio and Television. The Federal Communications Commission generally does not allow cross ownership, to keep from one license holder having too much local media ownership, unless the license holder obtains a waiver, such as News Corporation and the Tribune Company have in New York. The mid-1970s cross-ownership guidelines grandfathered already-existing crossownerships, such as Tribune-WGN, New York Times-WQXR and the New York Daily News ownership of WPIX Television and Radio.
