Working Paper: CEPR ID: DP15342
Authors: Assaf Hamdani; Konstantin Kosenko; Yishay Yafeh
Abstract: Large business enterprises, from the railroad barons of nineteenth century America to Amazon and Google today, are often perceived as important for economic performance and, at the same time, as potential abusers of their political and economic power. In this study, we compare the experiences of four countries that implemented policies to curb the influence of one type of large corporate entities – pyramidal business groups: The US in the 1930s; Japan during the American occupation (1945-1952); Korea following the Asian crisis (late 1990s); and Israel in the last decade (2010-2018). Novel regulatory measures, applied consistently in the US and Japan, where the extreme political circumstances were very favorable to economic reform, led to the demise of pyramidal business groups in these countries. Israel, where the reforms did not follow a severe crisis, also used specifically-designed regulatory tools over a decade-long period, resulting in a significant decline in the number and size of business groups. Korea, after experimenting with variety of regulatory measures, chose to rely primarily on corporate governance-focused reforms to curb the influence of the chaebol, but with limited effects; groups continue to dominate the Korean economy. Our findings point to the importance of specifically-designed regulatory tools, applied consistently over time, against the backdrop of a pro-reform political climate.
Keywords: business groups; pyramids; corporate governance; controlling shareholders; concentration of economic power
JEL Codes: G38; K22; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory measures (G18) | dismantling of pyramidal business groups in the U.S. (L22) |
| Public Utilities Holding Company Act (L94) | decline of pyramidal groups in the U.S. (N91) |
| Regulatory measures (G18) | dismantling of pyramidal business groups in Japan (L22) |
| Dissolution of zaibatsu (L22) | change in corporate ownership structures in Japan (G34) |
| Regulatory measures (G18) | limited effects on chaebol in Korea (L22) |
| Lack of sustained political support (E65) | limited effectiveness of reforms in Korea (E69) |
| Regulatory measures in Israel (L59) | reduction in prevalence and power of business groups (L59) |