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

Eugene Kandel; Konstantin Kosenko; Randall Morck; Yishay Yafeh

doi:10.1002/smj.2992

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

Eugene Kandel, Konstantin Kosenko, Randall Morck, Yishay Yafeh^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

19 Scopus citations

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.

Original language	American English
Pages (from-to)	781-808
Number of pages	28
Journal	Strategic Management Journal
Volume	40
Issue number	5
DOIs	https://doi.org/10.1002/smj.2992
State	Published - May 2019

Bibliographical note

Funding Information:
information Bank of Canada; SSHRC; Bank of Israel; Krueger Center at the Jerusalem School of Business Administration; The Falk Institute for Economic Research; Israel Science Foundation, Grant/Award Number: 1821/12; I-CORE program of the Planning and Budgeting CommitteeWe are grateful to Gur Aminadav, Yonatan Bar, Rachel Cooper, Jae Cornelssen, Ori Eisenberg, Yosi Haddas, Netanel Kahana, Ron Klein, Ari Kutai, Noam Michelson, Binh Minh Pham, Anna Popov, Itamar Shimonovitz, Erez Walter, Tom Zuckerberg, and, especially, Joseph Kalmenovitz and Noa Shukrun for outstanding research assistance. This research was supported by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Kosenko acknowledge financial support from the Falk Institute for Economic Research; Kandel and Yafeh received financial support for this project from the Krueger Center at the Jerusalem School of Business Administration. Kosenko is grateful also for support from the Bank of Israel; Morck gratefully acknowledges financial support from the SSHRC and the Bank of Canada. We also thank the Editor, Sharon Belenzon, four anonymous referees, Julian Franks, Erica Gorga, Assaf Hamdani, Niron Hashai, Eric Hilt, Paul Joskow, James Kwak, Shiki Levy, Amir Licht, Hideaki Miyajima, Uwe Walz, Eyal Zamir, and seminar participants at Ben Gurion University, Columbia University, Duke University, Harvard University, the Hebrew University, Hitotsubashi University, Korea University, the National University of Singapore, the NBER, Northwestern University, PKU (Guanghua School of Management), the SEC, Seoul National University, Tel Aviv University, the University of Alberta, the University of Chicago, the University of Manitoba, Waseda University, the WHU Business School (Koblenz), York University (Toronto), the 5th Corporate Governance in Emerging Markets Conference (Leipzig), the First Global Corporate Governance Colloquium (Stanford), the 10th CSEF-IGIER Symposium on Economics and Institutions (Capri), and the World Finance Conference (Venice) for helpful comments and suggestions. The views expressed here are the authors' and do not necessarily reflect those of the Bank of Canada or the Bank of Israel.

Funding Information:
Bank of Canada; SSHRC; Bank of Israel; Krueger Center at the Jerusalem School of Business Administration; The Falk Institute for Economic Research; Israel Science Foundation, Grant/Award Number: 1821/12; I-CORE program of the Planning and Budgeting Committee

Funding Information:
We are grateful to Gur Aminadav, Yonatan Bar, Rachel Cooper, Jae Cornelssen, Ori Eisenberg, Yosi Haddas, Netanel Kahana, Ron Klein, Ari Kutai, Noam Michelson, Binh Minh Pham, Anna Popov, Itamar Shimonovitz, Erez Walter, Tom Zuckerberg, and, especially, Joseph Kalmenovitz and Noa Shukrun for outstanding research assistance. This research was supported by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Kosenko acknowledge financial support from the Falk Institute for Economic Research; Kandel and Yafeh received financial support for this project from the Krueger Center at the Jerusalem School of Business Administration. Kosenko is grateful also for support from the Bank of Israel; Morck gratefully acknowledges financial support from the SSHRC and the Bank of Canada. We also thank the Editor, Sharon Belenzon, four anonymous referees, Julian Franks, Erica Gorga, Assaf Ham-dani, Niron Hashai, Eric Hilt, Paul Joskow, James Kwak, Shiki Levy, Amir Licht, Hideaki Miyajima, Uwe Walz, Eyal Zamir, and seminar participants at Ben Gurion University, Columbia University, Duke University, Harvard University, the Hebrew University, Hitotsubashi University, Korea University, the National University of Singapore, the NBER, Northwestern University, PKU (Guanghua School of Management), the SEC, Seoul National University, Tel Aviv University, the University of Alberta, the University of Chicago, the University of Manitoba, Waseda University, the WHU Business School (Koblenz), York University (Toronto), the 5th Corporate Governance in Emerging Markets Conference (Leipzig), the First Global Corporate Governance Colloquium (Stanford), the 10th CSEF-IGIER Symposium on Economics and Institutions (Capri), and the World Finance Conference (Venice) for helpful comments and suggestions. The views expressed here are the authors' and do not necessarily reflect those of the Bank of Canada or the Bank of Israel.

Publisher Copyright:
© 2018 John Wiley & Sons, Ltd.

Keywords

US business history
corporate control
pyramidal business groups

Access to Document

10.1002/smj.2992

Cite this

@article{8648e8eef48a43f3af3d81443ab90127,

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

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.",

keywords = "US business history, corporate control, pyramidal business groups",

author = "Eugene Kandel and Konstantin Kosenko and Randall Morck and Yishay Yafeh",

note = "Funding Information: information Bank of Canada; SSHRC; Bank of Israel; Krueger Center at the Jerusalem School of Business Administration; The Falk Institute for Economic Research; Israel Science Foundation, Grant/Award Number: 1821/12; I-CORE program of the Planning and Budgeting CommitteeWe are grateful to Gur Aminadav, Yonatan Bar, Rachel Cooper, Jae Cornelssen, Ori Eisenberg, Yosi Haddas, Netanel Kahana, Ron Klein, Ari Kutai, Noam Michelson, Binh Minh Pham, Anna Popov, Itamar Shimonovitz, Erez Walter, Tom Zuckerberg, and, especially, Joseph Kalmenovitz and Noa Shukrun for outstanding research assistance. This research was supported by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Kosenko acknowledge financial support from the Falk Institute for Economic Research; Kandel and Yafeh received financial support for this project from the Krueger Center at the Jerusalem School of Business Administration. Kosenko is grateful also for support from the Bank of Israel; Morck gratefully acknowledges financial support from the SSHRC and the Bank of Canada. We also thank the Editor, Sharon Belenzon, four anonymous referees, Julian Franks, Erica Gorga, Assaf Hamdani, Niron Hashai, Eric Hilt, Paul Joskow, James Kwak, Shiki Levy, Amir Licht, Hideaki Miyajima, Uwe Walz, Eyal Zamir, and seminar participants at Ben Gurion University, Columbia University, Duke University, Harvard University, the Hebrew University, Hitotsubashi University, Korea University, the National University of Singapore, the NBER, Northwestern University, PKU (Guanghua School of Management), the SEC, Seoul National University, Tel Aviv University, the University of Alberta, the University of Chicago, the University of Manitoba, Waseda University, the WHU Business School (Koblenz), York University (Toronto), the 5th Corporate Governance in Emerging Markets Conference (Leipzig), the First Global Corporate Governance Colloquium (Stanford), the 10th CSEF-IGIER Symposium on Economics and Institutions (Capri), and the World Finance Conference (Venice) for helpful comments and suggestions. The views expressed here are the authors' and do not necessarily reflect those of the Bank of Canada or the Bank of Israel. Funding Information: Bank of Canada; SSHRC; Bank of Israel; Krueger Center at the Jerusalem School of Business Administration; The Falk Institute for Economic Research; Israel Science Foundation, Grant/Award Number: 1821/12; I-CORE program of the Planning and Budgeting Committee Funding Information: We are grateful to Gur Aminadav, Yonatan Bar, Rachel Cooper, Jae Cornelssen, Ori Eisenberg, Yosi Haddas, Netanel Kahana, Ron Klein, Ari Kutai, Noam Michelson, Binh Minh Pham, Anna Popov, Itamar Shimonovitz, Erez Walter, Tom Zuckerberg, and, especially, Joseph Kalmenovitz and Noa Shukrun for outstanding research assistance. This research was supported by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Kosenko acknowledge financial support from the Falk Institute for Economic Research; Kandel and Yafeh received financial support for this project from the Krueger Center at the Jerusalem School of Business Administration. Kosenko is grateful also for support from the Bank of Israel; Morck gratefully acknowledges financial support from the SSHRC and the Bank of Canada. We also thank the Editor, Sharon Belenzon, four anonymous referees, Julian Franks, Erica Gorga, Assaf Ham-dani, Niron Hashai, Eric Hilt, Paul Joskow, James Kwak, Shiki Levy, Amir Licht, Hideaki Miyajima, Uwe Walz, Eyal Zamir, and seminar participants at Ben Gurion University, Columbia University, Duke University, Harvard University, the Hebrew University, Hitotsubashi University, Korea University, the National University of Singapore, the NBER, Northwestern University, PKU (Guanghua School of Management), the SEC, Seoul National University, Tel Aviv University, the University of Alberta, the University of Chicago, the University of Manitoba, Waseda University, the WHU Business School (Koblenz), York University (Toronto), the 5th Corporate Governance in Emerging Markets Conference (Leipzig), the First Global Corporate Governance Colloquium (Stanford), the 10th CSEF-IGIER Symposium on Economics and Institutions (Capri), and the World Finance Conference (Venice) for helpful comments and suggestions. The views expressed here are the authors' and do not necessarily reflect those of the Bank of Canada or the Bank of Israel. Publisher Copyright: {\textcopyright} 2018 John Wiley & Sons, Ltd.",

year = "2019",

month = may,

doi = "10.1002/smj.2992",

language = "American English",

volume = "40",

pages = "781--808",

journal = "Strategic Management Journal",

issn = "0143-2095",

publisher = "John Wiley and Sons Ltd",

number = "5",

}

TY - JOUR

T1 - The great pyramids of America

T2 - A revised history of U.S. business groups, corporate ownership, and regulation, 1926–1950

AU - Kandel, Eugene

AU - Kosenko, Konstantin

AU - Morck, Randall

AU - Yafeh, Yishay

N1 - Funding Information: information Bank of Canada; SSHRC; Bank of Israel; Krueger Center at the Jerusalem School of Business Administration; The Falk Institute for Economic Research; Israel Science Foundation, Grant/Award Number: 1821/12; I-CORE program of the Planning and Budgeting CommitteeWe are grateful to Gur Aminadav, Yonatan Bar, Rachel Cooper, Jae Cornelssen, Ori Eisenberg, Yosi Haddas, Netanel Kahana, Ron Klein, Ari Kutai, Noam Michelson, Binh Minh Pham, Anna Popov, Itamar Shimonovitz, Erez Walter, Tom Zuckerberg, and, especially, Joseph Kalmenovitz and Noa Shukrun for outstanding research assistance. This research was supported by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Kosenko acknowledge financial support from the Falk Institute for Economic Research; Kandel and Yafeh received financial support for this project from the Krueger Center at the Jerusalem School of Business Administration. Kosenko is grateful also for support from the Bank of Israel; Morck gratefully acknowledges financial support from the SSHRC and the Bank of Canada. We also thank the Editor, Sharon Belenzon, four anonymous referees, Julian Franks, Erica Gorga, Assaf Hamdani, Niron Hashai, Eric Hilt, Paul Joskow, James Kwak, Shiki Levy, Amir Licht, Hideaki Miyajima, Uwe Walz, Eyal Zamir, and seminar participants at Ben Gurion University, Columbia University, Duke University, Harvard University, the Hebrew University, Hitotsubashi University, Korea University, the National University of Singapore, the NBER, Northwestern University, PKU (Guanghua School of Management), the SEC, Seoul National University, Tel Aviv University, the University of Alberta, the University of Chicago, the University of Manitoba, Waseda University, the WHU Business School (Koblenz), York University (Toronto), the 5th Corporate Governance in Emerging Markets Conference (Leipzig), the First Global Corporate Governance Colloquium (Stanford), the 10th CSEF-IGIER Symposium on Economics and Institutions (Capri), and the World Finance Conference (Venice) for helpful comments and suggestions. The views expressed here are the authors' and do not necessarily reflect those of the Bank of Canada or the Bank of Israel. Funding Information: Bank of Canada; SSHRC; Bank of Israel; Krueger Center at the Jerusalem School of Business Administration; The Falk Institute for Economic Research; Israel Science Foundation, Grant/Award Number: 1821/12; I-CORE program of the Planning and Budgeting Committee Funding Information: We are grateful to Gur Aminadav, Yonatan Bar, Rachel Cooper, Jae Cornelssen, Ori Eisenberg, Yosi Haddas, Netanel Kahana, Ron Klein, Ari Kutai, Noam Michelson, Binh Minh Pham, Anna Popov, Itamar Shimonovitz, Erez Walter, Tom Zuckerberg, and, especially, Joseph Kalmenovitz and Noa Shukrun for outstanding research assistance. This research was supported by the I-CORE program of the Planning and Budgeting Committee and the Israel Science Foundation (Grant No. 1821/12). Kandel and Kosenko acknowledge financial support from the Falk Institute for Economic Research; Kandel and Yafeh received financial support for this project from the Krueger Center at the Jerusalem School of Business Administration. Kosenko is grateful also for support from the Bank of Israel; Morck gratefully acknowledges financial support from the SSHRC and the Bank of Canada. We also thank the Editor, Sharon Belenzon, four anonymous referees, Julian Franks, Erica Gorga, Assaf Ham-dani, Niron Hashai, Eric Hilt, Paul Joskow, James Kwak, Shiki Levy, Amir Licht, Hideaki Miyajima, Uwe Walz, Eyal Zamir, and seminar participants at Ben Gurion University, Columbia University, Duke University, Harvard University, the Hebrew University, Hitotsubashi University, Korea University, the National University of Singapore, the NBER, Northwestern University, PKU (Guanghua School of Management), the SEC, Seoul National University, Tel Aviv University, the University of Alberta, the University of Chicago, the University of Manitoba, Waseda University, the WHU Business School (Koblenz), York University (Toronto), the 5th Corporate Governance in Emerging Markets Conference (Leipzig), the First Global Corporate Governance Colloquium (Stanford), the 10th CSEF-IGIER Symposium on Economics and Institutions (Capri), and the World Finance Conference (Venice) for helpful comments and suggestions. The views expressed here are the authors' and do not necessarily reflect those of the Bank of Canada or the Bank of Israel. Publisher Copyright: © 2018 John Wiley & Sons, Ltd.

PY - 2019/5

Y1 - 2019/5

N2 - 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.

AB - 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.

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

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