Cross-ownership and portfolio choice

Andrea Galeotti and Christian Ghiglino

Journal of Economic Theory, 2021, vol. 192, issue C

Abstract: Cross-ownership smooths firms' idiosyncratic shocks but affects their portfolio choice and, therefore, their risk-taking position. The classical intuition on the role of pooling risk in raising welfare is valid when ownership is evenly dispersed. However, when the ownership of some firms is concentrated in the hands of a few others, deeper integration leads to excessive risk-taking and volatility and, consequently, it results in lower aggregate welfare.

Keywords: Financial networks; Separation between ownership and control; Bow-tie; Diversification; Concentration; Risk taking (search for similar items in EconPapers)
JEL-codes: G11 G32 G34 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:192:y:2021:i:c:s0022053121000119

DOI: 10.1016/j.jet.2021.105194

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