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Shareholder Value and Changes in American Industries, 1984-2000

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  • Fligstein, Neil
  • Shin, Taek-Jin
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    Abstract

    There is now a solid set of results from economic sociologists concerning the spread and implementation of "shareholder value" strategies across publicly held corporations in the United States during the 1980s. Corporations were financially reorganized and used the tactics of selling off unrelated product lines, engaging in mergers with firms in similar industries, various financial ploys such as stock buybacks, and downsizing their labor forces. This paper explores empirically the connections between mergers, layoffs, de-unionization, computer technology, and subsequent industry profitability. Mergers occurred in sectors where economic conditions were not good in line with shareholder value arguments. Mergers subsequently led to layoffs, consistent with the shareholder value perspective that emphasizes that firms needed to deploy their resources more efficiently as they reorganized. There is also evidence that managers who engaged in mergers invested in computer technology. This technology directly displaced workers through layoffs and was focused on reducing unionized work forces. There is no evidence that mergers or layoffs returned industries to profitability. Only industry growth and computer investment led to increased profits. This suggests that shareholder value ideology was not, by itself, successful in righting the problems of American business.

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    Bibliographic Info

    Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt82j7915n.

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    Date of creation: 01 Feb 2005
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    Handle: RePEc:cdl:indrel:qt82j7915n

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    Keywords: Shareholder Value;

    References

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    1. David H. Autor & Frank Levy & Richard J. Murnane, 2002. "Upstairs, downstairs: Computers and skills on two floors of a large bank," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(3), pages 432-447, April.
    2. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    3. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, And The Demand For Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 339-376, February.
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    8. Wolff, Edward N, 2002. "Computerization and Structural Change," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(1), pages 59-75, March.
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    12. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
    13. Hammer, Michael & Champy, James, 1993. "Reengineering the corporation: A manifesto for business revolution," Business Horizons, Elsevier, vol. 36(5), pages 90-91.
    14. Peter Cappelli, 2000. "Examining the Incidence of Downsizing and Its Effect on Establishment Performance," NBER Working Papers 7742, National Bureau of Economic Research, Inc.
    15. Blackwell, David W. & Marr, M. Wayne & Spivey, Michael F., 1990. "Plant-closing decisions and the market value of the firm," Journal of Financial Economics, Elsevier, vol. 26(2), pages 277-288, August.
    16. Caves, Richard E., 1989. "Mergers, takeovers, and economic efficiency : Foresight vs. hindsight," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 151-174, March.
    17. Whitley, Richard, 1986. "The transformation of business finance into financial economics: The roles of academic expansion and changes in U.S. capital markets," Accounting, Organizations and Society, Elsevier, vol. 11(2), pages 171-192, March.
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