Corporate Restructuring and Investment Horizons in the United States, 1976–1987

Many observers of the corporate restructurings that reached major proportions in the United States in the 1980s have believed that the market for corporate control had a serious negative impact on companies' long-term investment, which in turn contributed to the United States's decline in global competitiveness. In the following study, the author looks carefully at the effects of financial restructurings on investment, especially at expenditures on R&D, in a large set of companies categorized according to their level of technology and the length of their investment horizon. She then compares the U.S. situation with that in the United Kingdom, Germany, and Japan. She concludes that, though many such events occasioned no change at all in investment strategies, restructuring pressures and declines in investment tended to concentrate in certain industries. She also finds that investment decisions were usually rational, given high interest rates and a tax environment that favored debt over equity.