CORPORATE TAX LAWS, CORPORATE RESTRUCTURING, AND SUBSIDIARIZATION OF CORPORATE FORM, 1981–1995

Between 1981 and 1995 the dominant form of Fortune 500 firms changed from the multidivisional form to the multisubsidiary form (Zey and Camp 1996). The explanation for the movement toward subsidiarization originates in changes during the late 1970s and 1980s in the political economy, the relationship between corporations and capital, and the regulation of corporations. As a result of the declining capital accumulation of the 1970s, the federal government instituted two measures of corporate welfare, the Tax Reform Act of 1986 (TRA86) and the Revenue Act of 1987 (RA87), that provided corporations with nontaxable ways to restructure their acquisitions and divisions as subsidiaries. Thus, by the process of subsidiarization, corporations were able to continue capital flows. We examine the increase in subsidiarization from 1981–1995 as a means of assessing the utility of four theoretical perspectives to explain change in corporate form. A one-way random effects panel analysis demonstrates how corporate financial conditions, national business laws, and organizational characteristics combine to affect the rate of subsidiarization of U.S. corporations. Separate panel models for 1981–1985 (pre- TRA86) and 1986–1995 (post- TRA86) reveal that changes in corporate tax laws affect capital accumulation and result in significant change in corporate form. This analysis supports the structural political economy contingency theory arguing that change in capital accumulation, brought about by macro changes in political legal conditions of corporations, leads to the transformation of corporate form.     

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.     

State-Corporate Relationships in an Era of Shifting Regime: The Case of Corporate Law Reform in Israel

Different aspects of the relationship between state and economy have traditionally been examined, yet corporate governance and specifically corporate law have received less attention. This article focuses on the legislation of the new corporate law in Israel at the end of the 1990s, which took place during regime transformation from an interventionist state to a regulatory state. The article makes specific reference to three disputes: the lifting of the corporate veil, the separation of the positions of chairman of the board and chief executive officer, and the obligation of private firms to disclose financial reports. This article suggests that despite the transformation of the regime, state actors have continuously been involved via corporate law in the governance of corporations and their relationship with the environment. However, corporate law enables corporations to constrain state power and the state's influence on property rights.     

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.     

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.     

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.     

Public-private partnerships: How institutional linkages help to build organizational legitimacy in an international environment

Gaining legitimacy in their host country environment is a key priority for multinational corporations’ public relations efforts since it secures their local social license to operate. By applying neo-institutional public relations to corporate diplomacy, this paper argued that institutional linkages between corporations and local government could enhance the building of legitimacy. The study sought to determine whether institutional relations affect the perception of organizational legitimacy, focusing on the United Arab Emirates. In non-democratic countries, public relations tends to be perceived as less sophisticated, and legitimacy becomes even more critical for foreign corporations. Therefore, a one-factorial (corporate diplomacy with/ without governmental involvement) between-subjects experimental design study surveying a representative sample of residents in the United Arab Emirates (N = 199) was conducted. The results imply that corporate diplomacy with governmental linkages leads to a higher perception of moral, pragmatic, and regulative organizational legitimacy, partially mediated by media credibility, governmental legitimacy, and issue legitimacy.     

THE IMPORTANCE OF LEGAL FORM OF ORGANIZATION ON SMALL CORPORATION EXTERNAL FINANCING

This article quantitatively evaluates the impact of legal form of organization (LFO) choices, C versus S corporation, on small business external financing. A treatment effect model is formulated and estimated to examine the relationship between corporate types and chances of obtaining external financing. The estimation takes into account self‐selection bias associated with LFO choices. This article finds that LFO choices mainly affect small corporations' access to external equity capital, but have no significant impact on loan financing. Specifically, when a small corporation selects the C corporate legal form, the probability of obtaining new external equity is eight times higher compared to when it selects the S corporate legal form. Furthermore, the results suggest that better access to external equity investments, loosening business capital constraints, leads to better growth prospects for small C corporations. These empirical results have important macro‐economic implications on corporate financial and fiscal policies. (JEL G32, G38)     

Online strategic communication: A cross-cultural analysis of U.S. and Chinese corporate websites

This study applied a cultural divergence approach to examine online marketing interactivity and corporate public image on corporate websites. It analyzed different online strategic communication of corporate websites from two different nations—the United States and China. Results indicated that U.S. corporations were more likely to highlight online marketing interactivity and social responsibility, which integrated marketing and public relations as their online communication strategy. Chinese corporations provided more online spaces for the consumer–consumer interactions and emphasized corporation-oriented information.     

An exploratory study on content and style as driving factors facilitating dialogic communication between corporations and publics on social media in China

Global corporations publicize on social networking sites (SNSs) to foster dialogic communication with publics as a form of building relationships. Yet the link between the content and style of the corporation communication from different cultural backgrounds and publics’ responses in the form of likes and retweets is under-researched. This empirical study explored how global corporations from China and Germany employ factors such as useful content topics and culturally-influenced communication styles to cultivate dialogic communication with publics on Sina Weibo, the largest SNS in China. Although both German and Chinese corporations similarly posted a range of content on products/services, corporate appeal and relationship building with no distinct significant differences in their communication styles, publics’ response varied noticeably in that they were more receptive to content on products/services disseminated by German corporations yet had greater responses to content on corporate appeal posted by Chinese corporations. In addition, publics were more inclined to react favorably to messages presented in an individualistic style of communication by German companies and messages in a collectivistic style by Chinese companies. The implications of how to effectively use SNS to engage in dialogue with publics are highlighted.     

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-governmental networks in the Netherlands

Corporate networks studies have been restricted mainly to the private or business sectors. Network analyses involving both corporations and state or government agencies have been extremely rare. In this paper, the intercorporate network of interlocking directorates in the Netherlands, based on 86 large corporations and financial institutions, is studied in terms of a bipartite corporate—governmental network which arises from the interlocking memberships linking these corporations with major committees, agencies and similar centers of decision in the public sector or central state mechanisms in the Netherlands. The corporations, representing 27 industrial sectors, have been related to government and state agencies in 28 policy sectors. In this exploratory analysis the two heavy industries, metal/shipbuilding and chemicals/oil stand out clearly. With respect to the 17 central firms the results demonstrate consistent correspondence between their central position in the Dutch corporate network and the degree of their interlocks with policy sectors in the state. The results also show that the interlocks are overwhelmingly linked with the two policy sectors “economic affairs” and “education and sciences”. Hence a more detailed analysis of the interlocks with these two policy sectors is reported.     

The effects of consideration of future consequences and CSR fit in stigmatized industries: Perceived CSR motives as mediators

This study explored the effects of fit between corporations and their corporate social responsibility (CSR) initiatives in stigmatized industries. Specifically, it examined how these effects vary depending on stakeholders’ consideration of future consequences (CFC) in influencing individuals’ attitudes toward CSR and corporations and purchase intentions; further, it explored whether such interaction effects are mediated by three underlying perceived motives. The study involved a between-subjects experiment with 144 college students. The results showed that high-CFC individuals perceived corporations with strong fit to their CSR initiatives as more stakeholder- and self-serving. The interaction effect also was mediated by stakeholder-serving motives in influencing purchase intentions and by self-serving motives in influencing CSR and corporation-related attitudes.     

Transnational Corporate Investment and Food the Third World: A Cross-National Analysis1

Abstract World-system theory, dependency theory, and other critical perspectives indicate that activities of transnational corporations (TNCs) promote hunger in the Third World. However, cross-national research on effects of dependence has largely ignored this fundamental manifestation of underdevelopment. This study examines the impact of transnational corporate investment on food consumption in 60 countries. Per capita consumption of calories and protein from 1970 to 1985 is regressed on 1967 transnational corporate investment penetration (investment stocks), 1967 consumption, and appropriate controls. The results strongly support perspectives critical of TNCs. Transnational corporate penetration has a substantial detrimental effect on food consumption which grows with the length of the lag between penetration and the dependent variables. This finding is confirmed by robust regression analysis. Over the 1967–1985 period, countries with minimal transnational corporate penetration are estimated to have gained approximately 700 more calories and 20 more grams of protein consumption per person per day than countries with maximal transnational corporate penetration.     

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.     

Politicization of corporations and their environment: Corporations’ social license to operate in a polarized and mediatized society

Societies are increasingly characterized by polarization and fragmentation on a variety of socio-political issues. With the heightened social visibility of corporations, as a result of processes of mediatization, firms are pressured to engage with such social issues that are part of broader political discourses. Against the backdrop of these broad socio-political shifts, this study conceptually addresses the contribution of public relations to understanding the politicization of corporations and their environment. We argue that corporations have become inherently intertwined with their mediatized and polarized socio-political surroundings. As a result, corporations are increasingly pressured to speak out and take a stance on social issues to engage with their environment and renew their social license to operate (SLO) in a context characterized by political divides. By relying on concepts like issue arenas and corporate political advocacy, we argue that corporations can use public relations to publicly promote one ideal over another, by being guided by the corporation’s own intrinsic values and moral standpoints rather than efforts to balance competing interests of multiple stakeholders.     

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.     

Effects of issue ownership and issue obtrusiveness on corporate reputation at two Korean corporations

This study attempts to identify the effects of issue ownership of a corporation on its reputation, and the moderating effect of issue obtrusiveness. Two representative Korean corporations (Hyundai and SK) were selected and their reputations were measured. It was shown that a corporation, which owns issues that were perceived as important by publics, has a higher corporate reputation. There was no moderating effect of issue obtrusiveness on the relationship between issue ownership and corporate reputation; however, there was a possibility of issue obtrusiveness as an independent variable. Implication for public relations research and practice was discussed.     

The role of corporate social responsibility in strong sustainability

The aim of this paper is to analyze to what extent corporate social responsibility (CSR) contributes to strong sustainability, i.e. to what extent the use of natural resources and the environment is possible, given the current level of economic activity. We therefore examine responsibilities that corporations should take in order to fulfil the requirements of strong sustainability. Based on current CSR practices and theory as well as on businesses motivations regarding environmental and social investments, we will introduce the role of corporations in influencing consumption patterns. Furthermore, we will attempt to answer to what extent responsible corporate behaviour is determined by the current economic system.     

How financial crisis history informs ethical corporate communication: Insights from corporate communication leaders

This study explored how financial crisis history can inform corporate crisis communication practice across industries and over time. Thirty-eight interviews with chief communications officers (CCOs) and their counselors were conducted to explore what lasting lessons these corporate communication leaders learned from their crisis communication practice during the 2008 Financial Crisis. Key lessons learned include: 1) the importance for corporations to tailor their financial communication strategies according to victim vs. perpetrator perception and ethical response expectations held by stakeholders; 2) the importance of stakeholders, and employees in particular, when creating and implementing the plan; 3) the balance between speed and legal concerns, as well as the need for reducing complexity by making sure stakeholder communications are delivered with clarity and accessibility; and 4) a recipe for success includes honesty, transparency, trust/integrity, taking action to reform questionable practices, and abiding by one’s own personal morals. Insights from this study shed light on how learning contributes to ethical corporate communication practice in times of crisis and crisis spillover.