Cross ownership

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.^[1]

Cross ownership of stock

Countries noted to have high levels of cross ownership include:

• Japan ^[2]

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
• Lessening control of shareholders over corporate leadership.^[2]

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 25% (like in Germany), the profit of $800 would be taxed for $200, causing the company to take a $200 loss on the sale.

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.^{[citation needed]}

Media cross ownership

Cross ownership also refers to a type of media ownership in which one type of communications (say a newspaper) owns or is the sister company of another type of medium (such as a radio or TV station). One example is The New York Times 's former ownership of WQXR Radio and the Chicago Tribune's similar relationship with WGN Radio (WGN-AM) and Television (WGN-TV).

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 cross ownerships, such as Tribune-WGN, New York Times-WQXR and the New York Daily News ownership of WPIX Television and Radio.

References

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