Business Groups in the United States: A Revised History of Corporate Ownership, Pyramids and Regulation, 1930-1950

The extent to which business groups ever existed in the United States and, if they did exist, the reasons for their disappearance are poorly understood. In this paper we use hitherto unexplored historical sources to construct a comprehensive data set to address this issue. We find that (1) business groups, often organized as pyramids, existed at least as early as the turn of the twentieth century and became a common corporate form in the 1930s and 1940s, mostly in public utilities (e.g., electricity, gas and transportation) but also in manufacturing; (2) In contrast with modern business groups in emerging markets that are typically diversified and tightly controlled, many US groups were focused in a single sector and controlled by apex firms with dispersed ownership; (3) The disappearance of US business groups was largely complete only in 1950, about 15 years after the major anti-group policy measures of the mid-1930s; (4) Chronologically, the demise of business groups preceded the emergence of conglomerates in the United States by about two decades and the sharp increase in stock market valuation by about a decade, so that a causal link between these events is hard to establish, although there may well be a connection between them. We conclude that the prevalence of business groups is not inconsistent with high levels of investor protection; that US corporate ownership as we know it today evolved gradually over several decades; and that policy makers should not expect policies that restrict business groups to have an immediate effect on corporate ownership.