THE TRANSFORMATION OFTHE DOMINANT CORPORATE FORM FROM MULTIDIVISIONAL TO MULTISUBSIDIARY:

In 1986 the dominant form of the Fortune 500 industrial corporation changed from the multidivisional form (MDF) to the multisubsidiary form (MSF) (Zey and Camp 1996). We examine two major organizational perspectives (historical managerialism and agency theory) and an alternative perspective, the political economy contingency theory of capital accumulation (PECTA), to explain the transformation of Fortune 500 corporate form from MDF to MSF. Using event history analysis, we analyze data from 1981–1995 to define the covariates of this change, thereby predicting the risk of change to the now dominant MSF. The historical managerialism model considers assets as an indicator of size, operating profit margin as an indicator of efficiency, and return on sales as an indicator of profitability. The two major variables of the agency theory model are cash flow and debt-to-equity ratio. The alternative PECTA model considers tax savings resulting from changes brought about by the Tax Reform Act of 1986, percentage of shares held by institutional investors, shareholder return on equity, production-to-administrative intensity, dollar amount of acquisitions, and dollar amount of divestitures. Controlling for the natural log of gross assets, which has the strongest relationship to risk of transformation in dominant form from MDF to MSF, we found that the percentage of shares held by institutional investors, the sum of tax-free transactions (spin-offs, split-offs, and stock swaps), the total merger and acquisition activity, and the two-year lagged difference in the rate of first-level subsidiarization all had significant effects on the transformation of corporate form from the MDF to the now dominant MSF.     

Capital Dependence,Financial Risk,and Change from the Multidivisional to the Multilayered Subsidiary Form

Students of the modem corporation continue to assume that corporations have the same form as they did before the turbulent 1980s when the economy became increasingly globalized and competitive. Our analysis shows that corporations are changing from the multidivisional form to a multilayered subsidiary form. Previous research showed that most corporations were multidivisional in the late 1970s. However, by 1993, 42% of the largest 100 industrial corporations had one or no divisions. The mean number of divisions per corporation declined from 8.8 in 1981 to 4 in 1993, while the mean number of domestic subsidiary corporations increased from 23 in 1981 to 51 in 1993. Parent corporations are creating a hierarchy of subsidiary corporations. Most of these changes occurred after the mid-1980s change in state business policy. The theoretical framework historicizes the corporation by identifying how capital accumulation constraints and changes in the institutional arrangements (e.g., the state) within which corporations are embedded created motives and behaviors that resulted in a change in the corporate form. Findings from logistic regression suggest that corporations that have low profits, have low working capital, have a decline in dividend payments, and manufacture high-risk, liability prone product lines have an increased probability of change to the multilayered subsidiary form. Our results provide support for the capital dependence perspective.     

Corporate Form and the State: Business Policy and Change from the Multidivisional to the Multilayered Subsidiary Form*

The largest industrial corporations are changing to a multilayered subsidiary form. Whereas corporations have used subsidiaries to organize their assets since the tum of the century, the number of wholly owned subsidiaries in the 100 largest industrial corporations doubled between 1981 and 1993. The question addressed here is: Why are corporations changing their form now? I suggest that the question is historically contingent and that the answer is, in part, explained by changes in state business policy. A capital dependence framework is elaborated to examine the relationship between state business policy and corporations in the 1970s and 1980s. Business policy changes–resulting in the Tax Reform Act of 1986 and the Revenue Act of 1987–provided corporations with tax-free procedures for parent companies to simultaneously restructure their divisions as subsidiaries and restructure their debt. There are additional incentives for corporations to restructure their divisions as subsidiaries: (1) creating a liability firewall between the parent company and its subsidiary corporations, limiting the financial risk of parent companies, and (2) creating an internal capital market, providing an alternative form of financing thereby reducing corporations’dependence on external capital markets.     

Corporate Transformation to the Multilayered Subsidiary Form: Changing Economic Conditions and State Business Policy

Despite the prevalence of corporate change in the last decade, researchers have not examined whether a change occurred in the corporate form. The analysis here presents a historical case study of a large U.S. corporation and quantitative data on the largest 100 U.S. industrial corporations. The case study examines the effects of changing economic conditions and state business policy on the corporate form. This study demonstrates that the corporation changed to a multilayered subsidiary form (MLSF): a corporation with a hierarchy of two or more levels of subsidiary corporations with a parent company at the top of the hierarchy operating as a management company. Whereas rising debt and increasing competition in the 1970s and 1980s undermined corporations' capacity to accumulate capital, changes in state business policy in the mid-1980s provided the political-legal structure for corporations to restructure their assets as subsidiary corporations tax free. Changes in state business policy also provided a means for corporations to merge, acquire, and spin-off subsidiary corporations tax free. Quantitative data on the 100 largest U.S. industrial corporations show that while the multidivisional form decreased, the MLSF increased between 1981 and 1993. Findings support a capital dependence framework. The MLSF constructs liability firewalls among corporate entities and creates internal capital markets, reducing dependence on external capital markets.     

THE TRANSFORMATION FROM MULTIDIVISIONAL FORM TO CORPORATE GROUPS OF SUBSIDIARIES IN THE 1980s:

In the 1980s, the corporate form shifted from multidivisional forms to corporate groups of subsidiaries. Although many aspects of corporate change during the 1980s have been examined, the magnitude and nature of changes in corporate form have received relatively little attention. Moreover, this transformation of corporate form has been inadequately explained by the dominant theoretical perspectives on corporate form—managerialism, institutionalism, and agency theory. A new theory that incorporates dimensions of the existing perspectives is presented. This perspective maintains that corporate change occurs as a dialectical process, which in the 1980s involved a shift of corporate control from managers to owners, resulting from a crisis in the accumulation of capital in the corporation. After gaining control through institutional investments, owners insisted on greater return on their investments. Mergers and acquisitions transferred corporate capital from corporations, controlled by managers, to shareholders. The relative utility of this perspective compared to existing perspectives for explaining the transformation of corporate form in the 1980s is demonstrated, and hypotheses for understanding changes in corporate form in the 1990s are proposed.     

Will taxpayers ever like taxes?: Responses to the U.S. Tax Reform Act of 1986

Major policy changes like the 1986 Tax Reform Act (TRA) in the United States provide natural experiments to study attitudinal and behavior responses to law. Surprisingly, public evaluations of the TRA became increasingly negative after passage, while general support for the tax system became more positive in response to the changes. To explain this puzzle, we propose a dynamic model of taxpayer attitudes that is consistent with the observed loose linkage between logically-connected concepts. We briefly review the political context, objectives and impacts of the 1986 Tax Reform Act, and present several studies testing the impact of self-interest, prior beliefs, and social discussion on changes in attitudes and behavior.Results suggest that the complexity of taxes and difficulty in knowing objective impacts weakens the role of self-interest in attitudinal changes, thereby strengthening the role of prior beliefs and discussion. Evaluations of tax laws are most responsive to more politically-oriented influences.     

CORPORATE DIVERSIFICATION REVISITED: The Political–Legal Environment,the Multilayer‐Subsidiary Form,and Mergers and Acquisitions

This article examines causes of product‐line diversification in the largest 200 U.S. corporations between 1986 and 1996. The analysis shows that some corporations decreased their level of diversification. However, in contrast with previous studies, other corporations became more diversified. Change in the number of first‐level subsidiaries and the value of mergers and acquisitions influenced corporate diversification. In contrast with the multidivisional form, the organizational characteristics of the multilayer‐subsidiary form give management greater capacity to socialize capital, pursue mergers and acquisitions, and manage a large and diversified corporation. This multilayer‐subsidiary form limits the managerial problem of bounded rationality by organizing product lines and product groups in legally independent subsidiary corporations that are embedded in their respective markets.     

Social capital,guanxi and political influence in Chinese government relations

Social capital has emerged as a promising theoretical approach to understanding political influence in the public relations literature. However, the rationale of using social capital to influence corporate government relations in authoritarian societies is indistinct. To remedy this, we integrate Bourdieu’s (1986) and Lin’s (2001) social capital theories to explore how applying a variant form of social capital (e.g., guanxi) might shape corporate government relations in authoritarian China. A multi-method, qualitative approach was employed involving 44 interviews, participant observation and document review. The findings highlighted an underexamined “vertical” dimension of social capital (i.e., links with authority in a hierarchy), which enables corporations to exercise agency over the pre-existing and often vague regulatory environment. This study adds a new perspective to social capital with hierarchical guanxi that enriches our understanding of guanxi-based political influence in Chinese corporate government relations.     

THE TRANSFORMATION AND SURVIVAL OF FORTUNE 500 INDUSTRIAL CORPORATIONS THROUGH MERGERS AND ACQUISITIONS, 1981–1995

The 1980s leveraged buyouts followed by the 1990s stock swap mergers represent the most dynamic period in U.S. business history. Using Cox regression with time-varying covariates, we examine the relationships among changes in corporate mergers and acquisitions, changes in corporate diversification strategies, and the transition from the multidivisional form (MDF) to the multisubsidiary form (MSF) of the largest Fortune 500 U.S. parent corporations. Consistent with the political economy contingency theory of accumulation (PECTA), our findings show that acquisition risk is reduced as a function of size, product and industry diversification, and percentages of shares held by institutional investors. Acquisition risk is increased by holding units in a multidivisional rather than a multisubsidiary form, higher returns to shareholders, higher divestitures, higher production to administrative imensity, and surviving previous takeover attempts. The political-legal institutions of the state have increasingly engaged in activities that are supportive and profitable for industrial and financial corporations. The actions of the state are increasingly aligned with the interests of capital.     

EXPLAINING STATE BANS ON CORPORATE FARMING

State laws banning corporate farming present a puzzle for a rent-seeking explanation of political outcomes since family farmer proponents may receive no direct benefit from these bans. An explanation, developed here, is that these farmers benefit indirectly. Forestalling corporate entry preserves the farm political coalition structured around those cooperatives patronized by family farmers and so indirectly preserves federal subsidies and supply restrictions. That the incidence of state bans is positively related to the importance of federal farm programs, the importance of cooperatives, and the homogeneity of farmers within a state is consistent with this indirect rent-seeking explanation.     

IRRATIONALITY AND CONTRADICTION IN ORGANIZATIONAL CHANGE: Transformation in the Corporate Form of a U.S. Steel Corporation, 1930–1987

This article analyzes historical and interview data on one of the largest steel corporations in the U.S. to determine (1) the effects of financial controls on long-term incremental organizational changes, (2) the effects of the environment on the organization, (3) the degree to which organizations structure their environment, and (4) the conditions that transform the corporate form. Findings demonstrate that transformations emerge from crisis due to contradictions within the corporate form and between the corporate form and its environment. The sources of these contradictions include the long-term irrationality of formally rational financial controls, oligopolistic structures, and the state's tax policies. These findings question efficiency arguments in general, but more specifically do not support Alfred Chandler's conception of the "logic of managerial enterprise," which suggests that oligopolistic corporations are efficient because their size provides capital to realize economies of scale, and market share competition sharpens management's skills.     

ENVIRONMENTAL JUSTICE AND THE POLITICAL PROCESS: Movements, Corporations, and the State

I explore two questions in this article: (1) How has the role of the U.S. state in the political process changed vis‐à‐vis corporations? (2) What tactical repertoires have movements devised to confront this changing political process? Through the lens of the U.S. environmental movement, I find that (1) the state's policy‐making authority has weakened as corporations have become both policy makers and the new targets of challengers, (2) the environmental movement has devised organizing strategies–such as corporate‐community compacts or good neighbor agreements–to respond to and influence this new political process, and (3) those segments of the movement that ignore the political economic process are likely to meet with failure. These changes in the political economy constitute a challenge for the political process model. I therefore propose a “political economic process’ perspective to extend the political process model and more accurately capture these dynamics. The political economic process perspective evaluates four state‐centric assumptions of the political process model (the state as the primary movement target or vehicle of reform, the state policy‐making monopoly, capital as just another interest group, and the primacy of the nation‐state level of analysis) and demonstrates that the political economic process has changed in dramatic ways.     

CORPORATE RESTRUCTURING:

Recently the term "corporate restructuring' has been used to signify a series of strategies to relieve corporate cost burdens. In the American context, corporate restructuring has been synonymous with widespread layoffs and worker terminations as a prevailing strategy. Japanese and German firms, in contrast, use alternative employment adjustment measures with worker termination used as a last resort. Close examination indicates Japanese corporations exhibit organizing principles based on an elaborate sequence of employment adjustment responses to prolonged recession. Further, this article identifies the institutional relations that permit Japanese firms to resist terminating regular employees as a response to recession. Finally, we contend that societal accounting conventions mediate these institutional configurations and employment adjustments to economic recession. These Japanese organizing principles are not universal but represent a societal accounting scheme sustained by overlapping and crosscutting corporate, government, and social institutions .     

Motives of corporate political donations: industry regulation,subjective judgement and the origins of pragmatic and ideological corporations

What motivates corporate political action? Are corporations motivated by their own narrow economic self‐interest; are they committed to pursuing larger class interests; or are corporations instruments for status groups to pursue their own agendas? Sociologists have been divided over this question for much of the last century. This paper introduces a novel case – that of Australia – and an extensive dataset of over 1,500 corporations and 7,500 directors. The paper attempts to understand the motives of corporate political action by examining patterns of corporate political donations. Using statistical modelling, supported by qualitative evidence, the paper argues that, in the Australian case, corporate political action is largely motivated by the narrow economic self‐interest of individual corporations. Firms’ interests are, consistent with regulatory environment theory, defined by the nature of government regulation in their industry: those in highly regulated industries (such as banking) and those dependent on government support (such as defence) tend to adopt a strategy of hedging their political support, and make bipartisan donations (to both major parties). In contrast, firms facing hostile regulation (such as timber or mining), and those without strong dependence on state support (such as small companies) tend to adopt a strategy of conservative partisanship, and make conservative‐only donations. This paper argues that regulatory environment theory needs to be modified to incorporate greater emphasis on the subjective political judgements of corporations facing hostile regulation: a corporation's adoption of conservative partisanship or hedging is not just a product of the objective regulation they face, but also whether corporate leaders judge such regulation as politically inevitable or something that can be resisted. Such a judgement is highly subjective, introducing a dynamic and unpredictable dimension to corporate political action.     

CORPORATE CONTROL AND PERFORMANCE IN THE 1930s

This paper tests the Berle and Means thesis that the dissemination of corporate ownership has allowed corporate managers to pursue goals other than profit maximization. Using piece-wise linear regression analysis with a sample of large U.S. corporations in the 1930s, a nonlinear relation is estimated between the degree of dominant stockholder control and corporate performance. The empirical results lend some support for the Berle and Means view of the "modern" corporation. In particular, a small degree of stockholder control is found to be associated with a low level of corporate performance, ceteris paribus.     

CORPORATE TAX INCIDENCE AND INEFFICIENCY WHEN CORPORATE AND NONCORPORATE GOODS ARE CLOSE SUBSTITUTES

An important deficiency in Harberger's [1962] model of corporate income taxation is its inability to consider both corporate and noncorporate production of the same good. Within-industry substitution has potentially major implications for both the excess burden and incidence of the corporate tax.
We analyze this within-industry substitution using a model in which each industry/sector contains corporate and noncorporate firms (with identical production functions) which produce goods that are close substitutes. The scope for considerable within-industry substitution of noncorporate for corporate capital leads to a very much larger excess burden than that in the Harberger model.     

TECHNOLOGY, CAPITAL SPENDING, AND CAPACITY UTILIZATION

Capacity utilization is a closely watched macroeconomic indicator because rising utilization may signal rising inflationary pressures. However, recent technological changes have increased the flexibility of relationships between inputs and outputs, potentially eroding the predictive value of the utilization rate. This paper examines relationships between technology, capital spending, and capacity utilization. After establishing conceptually that the effect of recent technological changes on capacity utilization is ambiguous, we investigate the effect empirically using panel data on 111 manufacturing industries. Our results suggest that, for the average industry, the technological change of the 1974–2000 period lowered capacity utilization by 0.2–2.3 percentage points. ( JEL D24, E22, E31)     

Do organizational and political–legal arrangements explain financial wrongdoing?

The 2008 financial crisis was a systemic problem with deep‐rooted structural causes that created opportunities to engage in financial malfeasance, a form of corporate wrongdoing. However, few quantitative studies exist on the effects of organizational and political–legal arrangements on financial malfeasance. In this paper, we examine the effects of organizational and political–legal arrangements that emerged in the 1990s in the FIRE sector (i.e., financial, insurance, and real estate) on financial malfeasance. Our historical contextualization demonstrates how changes in the political–legal arrangements facilitate the emergence of new corporate structures and opportunities for financial malfeasance. Our longitudinal quantitative analysis demonstrates that US FIRE sector corporations with a more complex organizational structure, larger size, lower dividend payment, and higher executive compensation are more prone to commit financial malfeasance.     

THE TAXPAYER RELIEF ACT OF 1997 AND HOMEOWNERSHIP: IS SMALLER NOW BETTER?

Prior to the Taxpayer Relief Act of 1997 (TRA97), the capital gain from the sale of a home was taxed differently for those over and under the age of 55. TRA97 eliminated this differential treatment. Using a difference‐in‐difference approach, we find that home sellers slightly under the age of 55 were 6.2% more likely to move for a less expensive house to maintain, 6.6% less likely to move for a larger place, and 5.2% more likely to reside in a condominium after TRA97's enactment, relative to those slightly over 55. (JEL H24, R21)     

The Deterrent Effect of Capital Punishment: Evidence from a "Judicial Experiment"

We use panel data for 50 states during the 1960–2000 period to examine the deterrent effect of capital punishment, using the moratorium as a "judicial experiment." We compare murder rates immediately before and after changes in states' death penalty laws, drawing on cross-state variations in the timing and duration of the moratorium. The regression analysis supplementing the before-and-after comparisons disentangles the effect of lifting the moratorium on murder from the effect of actual executions on murder. Results suggest that capital punishment has a deterrent effect, and that executions have a distinct effect which compounds the deterrent effect of merely (re)instating the death penalty. The finding is robust across 96 regression models. (JEL C1, K1)