If website Y links to website Z, then website Y gets credited with a percentage of website Z's PR. Website Z loses nothing as far as Page Rank is concerned - unless and until the link is to a bad website (porn, extreme violence, gambling, etc.) or a barred area.
An case in point to interpret the circumstances better: Site Z had a Page Rank of 5, there were only 2 outbound links to Site Z. One of the outbound Links was to brand new Site Y. Brand new Site Y had 4 outgoing links, with NO other Incoming Links, apart from the one from Site Z. Google bestowed Site Y a PR of 5.
From this case in real life, it is obvious that fewer outbound links on a per page basis earns a higher PR.
If Site Z in the above case had a massive bundle of outgoing links on the page, in that scenario, the percentage of Page Rank conceded would have been smaller and the New Site Y would have been given a lower rank than the equal rank that was passed with fewer external links.
What To Avoid
Whilst partaking in reciprocal linking, make certain you look at the number of outbound links that not only the page has but the overall site as well. Search engines such as Google do not like pornography sites, gambling sites and Link Farms that have thousands of links on them. Do not link to any of those types of sites unless that is your business.
You May possibly suffer big Page Rank loss and Search Engine results if you link to sites that are regarded as bad neighborhoods or are barred. Be watchful and make certain you monitor before linking. Though now and then you may possibly not be disciplined, you will not reap any benefits and the loss in PR (page rank) of your site is not at all worth it.
Be conscious of which sites the outbound links are linking your site to. Look at your outbound links methodically, to make certain that they are:
1) Still an functioning website
2) Still a resource for the purpose you linked to them in the first place
3) They have not reconfigured formats or the theme and remain to be a quality site.
Page Rank progresses over time. Though not very often, Google does update the Page Rank, once in say every four to eight months. So link swap with like-themed sites or important sites is the finest SEO Tactic.