Working Paper: NBER ID: w19691
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) The data link the disappearance of business groups to 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 too. 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 Ownership; Business Groups; Regulation; U.S. History
JEL Codes: G3; N22; P12
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) in 1935 (L94) | decline of business groups (L22) |
| tax reforms initiated in 1935 (H26) | decline of business groups (L22) |
| Investment Company Act of 1940 (G24) | decline of business groups (L22) |
| regulatory actions and supportive political climate (G18) | decline of business groups (L22) |