Working Paper: CEPR ID: DP9759
Authors: Eugene Kandel; Konstantin Kosenko; Randall Morck; Yishay Yafeh
Abstract: Most listed firms are freestanding in the U.S, while listed firms in other countries often belong to business groups: lasting structures in which listed firms control other listed firms. Hand-collected historical data illuminate how the present ownership structure of the United States arose: (1) Until the mid-20th century, US corporate ownership was unexceptional: large pyramidal groups dominated many industries; (2) About half of these resembled groups elsewhere today in being industrially diversified and family controlled; but the others were tightly focused and had widely held apex firms; (3) US business groups disappeared gradually, primarily in the 1940s, and by 1950 were largely gone; Their demise took place against growing concerns that they posed a threat to competition and even to society; (4) We establish a link between the disappearance of business groups and reforms that targeted them explicitly ? the Public Utility Holding Company Act (1935) and rising intercorporate dividend taxation (after 1935), or indirectly ? enhanced investor protection (after 1934), the Investment Company Act (1940) and escalating estate taxes. Banking reforms and rejuvenated antitrust enforcement may have indirectly contributed as well. These reforms, sustained in a lasting anti-big business climate, promoted the dissolution of existing groups and discouraged the formation of new ones. Thus, a multi-pronged reform agenda, sustained by a supportive political climate, created an economy of freestanding firms.
Keywords: corporate groups; corporate ownership; new deal; us financial history
JEL Codes: G3; G34; G38; N22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public Utility Holding Company Act (PUHCA) (L94) | decline of pyramidal business groups (L22) |
| enforcement of PUHCA (G18) | downsizing of public utility groups (L97) |
| intercorporate dividend tax (G35) | reduction in tiers of pyramidal structures (P30) |
| Investment Company Act (1940) (G24) | increased control stakes in surviving groups (G34) |
| PUHCA (1935), intercorporate dividend tax, Investment Company Act (1940) (G38) | transformation of U.S. corporate landscape (G34) |