crossholdings

Crossholdings are arrangements in which two or more firms own equity stakes in each other, creating mutual ownership links that can be direct or via intermediaries. They form networks of ownership rather than simple supplier–customer or investor–issuer relationships. Crossholding can involve minority or controlling stakes and may exist among a core group of affiliated companies or more broadly within a corporate group.

Motives for crossholdings include strategic coordination, protection against hostile takeovers, stable long-term relationships, and easier access to capital. In some cases they are used to align incentives, share risks, or embed supply chain and business-system dependencies. They can also reflect historical corporate governance practices in certain markets, where crossholdings were used to cement alliances and mutual comfort among large firms.

The effects of crossholdings are mixed. Benefits may include greater strategic alignment, stability, and resilience in financing. Downsides include governance complexity, entrenchment of management, reduced external discipline, valuation distortions, and difficulties in restructuring or exit. Crossholdings can obscure true control and complicate conflict-of-interest and minority shareholder protections. They also raise regulatory concerns about concentration of ownership and anti-competitive effects, and may provoke disclosure and transparency requirements.

Measurement typically involves the cross-holding ratio or net crossholding metrics to assess the extent of reciprocal ownership and the depth of interdependence. It is related to concepts such as cross-ownership and interlocking directorates, though the latter concerns board-level connections rather than equity stakes.

Examples and prevalence vary by region and era; crossholding has been more associated with historical corporate groups in Japan and some other economies, and has generally declined in markets that emphasize strong market discipline and governance reforms.