Cross Ownership of Stock
Some countries where cross ownership of shares is a major part of the business culture are:
- Japan
- Germany
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.
Read more about this topic: Cross Ownership
Famous quotes containing the words cross, ownership and/or stock:
“But soft, behold! lo where it comes again!
I’ll cross it though it blast me. Stay, illusion!”
—William Shakespeare (1564–1616)
“They had their fortunes to make, everything to gain and nothing to lose. They were schooled in and anxious for debates; forcible in argument; reckless and brilliant. For them it was but a short and natural step from swaying juries in courtroom battles over the ownership of land to swaying constituents in contests for office. For the lawyer, oratory was the escalator that could lift a political candidate to higher ground.”
—Federal Writers’ Project Of The Wor, U.S. public relief program (1935-1943)
“All that stock of arguments [the skeptics] produce to depreciate our faculties, and make mankind appear ignorant and low, are drawn principally from this head, to wit, that we are under an invincible blindness as to the true and real nature of things.”
—George Berkeley (1685–1753)