The Transformation and Survival of Fortune 500 Industrial Corporations Through Mergers and Acquisitions, 1981–1995

Abstract

The 1980s leveraged buyouts followed by the 1990s stock swap mergers represent the most dynamic period in U.S. business history. Using Cox regression with time-varying covariates, we examine the relationships among changes in corporate mergers and acquisitions, changes in corporate diversification strategies, and the transition from the multidivisional form (MDF) to the multisubsidiary form (MSF) of the largest Fortune 500 U.S. parent corporations. Consistent with the political economy contingency theory of accumulation (PECTA), our findings show that acquisition risk is reduced as a function of size, product and industry diversification, and percentages of shares held by institutional investors. Acquisition risk is increased by holding units in a multidivisional rather than a multisubsidiary form, higher returns to shareholders, higher divestitures, higher production to administrative intensity, and surviving previous takeover attempts. The political-legal institutions of the state have increasingly engaged in activities that are supportive and profitable for industrial and financial corporations. The actions of the state are increasingly aligned with the interests of capital.The effects of US. corporate restructuring have not been examined during extended periods of declining profitability and rapidly increasing corporate debt.l The declining profits and increasing debt of the 1970s and early 1980s placed constraints on U.S. corporations. Confronted with increasing competition from globalization and shrinking markets as well as back-to-back recessions in 1980 and 1981, record numbers of corporations were acquired, largely through leveraged buyouts (LBOs) through 1988.2 In the face of major capital constraints in the 1980s, corporate executives increased their control through centralization of decisions in the executive office and increased the flexibility of top management through restructuring (Zey-Ferrell and McIntosh 1987; Zey 1993a). The transition from the multidivisional to the multisubsidiary form did not occur because of market mechanisms or natural tendencies but rather because of corporate