CORPORATE TRANSFORMATION TO THE MULTILAYERED SUBSIDIARY FORM - CHANGING ECONOMIC-CONDITIONS AND STATE BUSINESS POLICY

Despite the prevalence of corporate change bl the last decade, researc hers have not examined whether a change occurred in the corporate form . The analysis here presents a historical case study of a large U.S. c orporation and quantitative data on the largest 100 U.S, industrial co rporations. The case study examines the effects of changing economic c onditions 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 hierar chy operating as a management company Whereas rising debt and increasi ng competition in the 1970s and 1980s undermined corporations' capacit y to accumulate capital changes in stare business policy in the mid-19 80s provided the political-legal structure for corporations to restruc ture their assets as subsidiary corporations tar free. Changes in stat e business policy also provided a means for corporations to merge, acq uire, and spin-off subsidiary corporations tax free. Quantitative data on the 100 largest U.S. industrial corporations drew that while the m ultidivisional 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 cap ital markets, reducing dependence on external capital markets.