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The great pyramids of America: A revised history of U.S. business groups, corporate ownership, and regulation, 1926–1950

Author

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  • Eugene Kandel
  • Konstantin Kosenko
  • Randall Morck
  • Yishay Yafeh

Abstract

Research Summary: Control‐magnifying (pyramidal) business groups—multiple tiers of partially‐owned listed affiliates and fully‐owned private affiliates, a dominant organizational form around the world—are virtually absent in America today. Using newly‐assembled historical data, we show that such groups were ubiquitous in the U.S. economy in the 1930s. They came under attack because of their economic and political sway: Some New Deal reforms—proscriptions against public utilities pyramids, intercorporate dividend taxes, and rules governing investment companies—were explicitly aimed at deterring existing groups and preventing new ones from forming. Others, for example, estate taxes and securities law reforms, may have also worked against them. No single reform triggered the immediate dissolution of groups; they broke up under an ongoing anti‐big business sentiment. These events offer lessons for policymakers today. Managerial Summary: Most listed U.S. firms are “standalone”—they do not control, and are not controlled by, other listed firms. Control‐magnifying (pyramidal) business groups—multiple tiers of partially‐owned listed affiliates and fully‐owned private affiliates (e.g., Samsung or Tata)—are ubiquitous around the world but virtually absent in United States. In such groups, the combination of multiple tiers and partial ownership enables control over vast corporate empires. Using newly‐assembled historical data, we show that the U.S. corporate ownership as we know it today is a recent phenomenon: pyramidal groups were common in United States of the 1930s. President Roosevelt, who regarded their economic and political power as excessive, initiated a sequence of reforms which appears to have worn these groups down and probably also kept new ones from forming. JEL CLASSIFICATION: G3, G34, G38, N22.

Suggested Citation

  • Eugene Kandel & Konstantin Kosenko & Randall Morck & Yishay Yafeh, 2019. "The great pyramids of America: A revised history of U.S. business groups, corporate ownership, and regulation, 1926–1950," Strategic Management Journal, Wiley Blackwell, vol. 40(5), pages 781-808, May.
  • Handle: RePEc:bla:stratm:v:40:y:2019:i:5:p:781-808
    DOI: 10.1002/smj.2992
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    Citations

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    Cited by:

    1. Assaf Hamdani & Konstantin Kosenko & Yishay Yafeh, 2021. "Regulatory Measures to Dismantle Pyramidal Business Groups: Evidence from the United States, Japan, Korea, and Israel," Journal of Law, Finance, and Accounting, now publishers, vol. 6(2), pages 221-261, November.
    2. Jiaying Fan & Kai Wang & Lidong Wu, 2023. "Monitoring the Type I Agency Problem or the Type II Agency Problem? Directors Appointed by Non-State Shareholders and the CEO Turnover–Performance Sensitivity," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(7), pages 2160-2189, May.
    3. Aldunate, Felipe & González, Felipe & Prem, Mounu & Urzúa, Francisco, 2020. "Privatization and business groups: Evidence from the Chicago Boys in Chile," Explorations in Economic History, Elsevier, vol. 78(C).
    4. Gur Aminadav & Elias Papaioannou, 2020. "Corporate Control around the World," Journal of Finance, American Finance Association, vol. 75(3), pages 1191-1246, June.
    5. Viswanathan Nagarajan & Pitabas Mohanty & Apalak Khatua, 2023. "Financing effects of corporate diversification: A review," Review of Managerial Science, Springer, vol. 17(7), pages 2555-2585, October.
    6. Joyce C. Wang & Jingtao Yi & Xiuping Zhang & Mike W. Peng, 2022. "Pyramidal Ownership and SOE Innovation," Journal of Management Studies, Wiley Blackwell, vol. 59(7), pages 1839-1868, November.
    7. Le Breton-Miller, Isabelle & Miller, Danny, 2023. "Contradiction and disaggregation for family firm research," Journal of Family Business Strategy, Elsevier, vol. 14(1).
    8. Sertsios, Giorgo, 2020. "Corporate finance, industrial organization, and organizational economics," Journal of Corporate Finance, Elsevier, vol. 64(C).
    9. Ducret, Romain, 2021. "Investors' perception of business group membership during an economic crisis : Evidence from the COVID-19 pandemic," FSES Working Papers 524, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    10. Jeoung Yul Lee & Shufeng (Simon) Xiao & Surender Munjal, 2023. "How business groups build globally relevant knowledge from local contexts? Exploring the double-edged sword effect of cultural diversity," Asian Business & Management, Palgrave Macmillan, vol. 22(5), pages 2189-2224, November.

    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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