Strategic Trade Policies and Managerial Incentives under International Cross Ownership

This paper examines the implications of the separation of ownership and management based on a strategic export promotion policy when the shares of exporting firms are internationally owned by the residents of both countries in an international duopolistic market. Although the presence of either cross ownership or managerial delegation weakens the exporting countries’ subsidization incentives, their combined presence does not always have an additive effect. We find that the cross-ownership structure always weakens the governments’ subsidization incentives irrespective of the presence of managerial delegation. However, managerial delegation may raise or lower the optimal subsidy (or tax) rate, depending on the presence of a cross-ownership structure. Furthermore, we compare the equilibrium subsidy rates in four different cases to show the correlation between ownership structure and managerial delegation. This paper clarifies how combined presence of managerial decision process and international mutual shareholding alter strategic export promotion policies when firms compete a la Cournot.