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Cross-ownership and portfolio choice

Journal

Journal of Economic Theory

Subject

Economics

Publishing details

Journal of Economic Theory 2021 March Vol 192 p 105194

Authors / Editors

Galeotti A;Ghiglino C

Biographies

Andrea Galeotti

Publication Year

2021

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 risk; Networks; Moral hazard

Available on ECCH

No


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