Investor Sentiment and Antitrust Law as Determinants of Corporate Ownership Structure: The great Merger Wave of 1897 to 1903

A great merger wave occurring in the United States between 1897 and 1903 was the single most important event in a process that yielded the pattern of managerial control and dispersed share ownership which currently distinguishes America's corporate economy from arrangements in most other countries. This paper examines the turn of the century consolidation movement in order to offer lessons on how patterns of ownership and control become configured. The United States constitutes the central reference point for analysis but the paper also considers events occurring in Germany. One theme the paper develops is that mergers matter with respect to the evolution of systems of ownership and control. Events occurring in the U.S. and Germany indicate that different patterns of acquisition activity in the two countries had important consequences for the evolution of business forms that persist to the present day. A second topic the paper deals with is the process by which a country's investors become sufficiently comfortable owning publicly traded shares to permit a transition from concentrated to dispersed share ownership. The merger wave of 1897 to 1903 illustrates that surges in demand for shares founded upon optimistic investor sentiment is a potentially important variable. A third theme the paper emphasizes is antitrust law's significance. The experience in the U.S. and Germany suggests that the legal status of anticompetitive alliances is a potentially important determinant of corporate ownership structures.