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Company Cross-Holdings and Investment Analysis

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  • Ranjan Sinha

Abstract

Some analysts have suggested that the prevalence of cross-holdings leads to a significant distortion in aggregate market capitalizations. Moreover, equity investors and creditors are advised to undo the effects of these distortions when analyzing companies in markets where cross-holdings are common. The analysis here shows that for most equity investment decisions, undoing the effects of cross-holdings is inappropriate. Furthermore, cross-holdings do increase the debt-bearing capacity of firms and should not be entirely eliminated during credit analysis. Finally, empire building is unlikely to be the primary reason for cross-holdings.

Suggested Citation

  • Ranjan Sinha, 1998. "Company Cross-Holdings and Investment Analysis," Financial Analysts Journal, Taylor & Francis Journals, vol. 54(5), pages 83-89, September.
    • Handle: RePEc:taf:ufajxx:v:54:y:1998:i:5:p:83-89
    DOI: 10.2469/faj.v54.n5.2215
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