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.Economic relationships especially with finance were also impor-tant.Unless there was a perfect capital market a dubious proposition itcan be assumed that the nature of past ties with finance explains why majorcorporations were founded in some industries rather than others.Rail-road rebates and kickbacks facilitated the growth of particular firms in in- 26 C H A P T E R T W Odustries like petroleum, sugar refining, and whiskey, often at the expense ofindependent firms.Interaction with railroad companies influenced majorsuppliers such as the steel, leather, lumber, and locomotive manufacturersto reorganize as part of the corporate institution.All these factors areignored in perspectives that focus on industries rather than firms.None-theless efficiency theory s emphasis on technology and markets makesthe industry an appropriate unit with which to test the theory, to which wenow turn.1EFFICIENCY THEORYEfficiency theory holds that corporations offer certain technological andfunctional advantages over other organizational forms.The advantagesusually cited include limited liability, continuity of existence beyond the lifeof founders, easy transfer of ownership shares, ability to raise capital, andsometimes legal privileges such as franchise, monopoly and even rights ofeminent domain (for example, see Seager and Gulick 1929; Porter 1973;Ransom 1981).The key concepts in this theory are technological develop-ment and rational, functional adaptation.Chandler makes two major points about the structural properties ex-plaining variation among industries: (1) The economic structure underlyinglarge firms arose between 1880 and 1920 and has been stable since then.The distribution of the leading two hundred firms among industries in 1917was virtually identical to that of 1973.This implies that the inherent char-acteristics of industries underlie the development of giant firms.(2) Nearlyall industries tried to create giant firms, but only some succeeded, so differ-ences were a matter not of motivation, but of structure.McCraw describesit: Try as they might, businessmen in peripheral industries simply couldnot make their combinations work, precisely because of the nature of thoseindustries (1981, 22).He cites failures such as United States Leather,American Cattle, Standard Rope and Twine, and National Cordage.Thefailed trusts tended to have a high ratio of variable to fixed costs, were laborintensive, lacked any important scale economics in either production ormarketing, and were thus easily overtaken by new entrants.Chandler sum-marized his argument: Therefore modern business enterprise first ap-peared, grew, and continued to flourish in those sectors and industries char-acterized by new and advancing technology and expanding markets (Chandler 1977, 8; see also his chap.8).He reasoned that when technolog-ical innovation increased the velocity of throughput, firms could reduce thecost of production per unit and increase the output per worker, producingeconomies of scale that rendered administrative coordination more efficientthan market coordination the visible hand of hierarchy replacing the invisible hand of the market.The crucial issue is whether this line of rea-soning holds up to empirical test. A T E S T O F E F F I C I E N C Y T H E O R Y 27DEPENDENT VARIABLEThe dependent variable is the extent to which industries incorporated inmajor corporations regardless of whether they were formed by merger orother means, in 1901 1904, the peak years of the corporate revolution.2Two aspects are distinguished.One is whether any firms in an industry tookthe form of a major corporation.The other is the extent to which thoseindustries with any major corporations were organized by corporate capi-tal.As detailed in Appendix 2.1, this concept has several facets.The datawere taken from the Manual of Statistics, an annual compilation of infor-mation on all firms listed on the major stock exchanges, a precursor to themore well known volumes like Standard and Poor s or Moody s Manual.The first dependent variable is a dummy variable (a binary yes/no variable)indicating whether the industry had any major corporations, that is, anycorporations with at least $1,000,000 total capital, listed in the Manual ofStatistics in the years 1901 1904.3 Of the 278 industries, only 104 hadmajor companies listed on the stock exchanges, while 174 did not.4The facet of the dependent variable is the extent to which industries withany major corporations were organized by corporate capital, which is oper-ationalized as the average aggregated value of authorized stocks and bondsfor the years 1901 to 1904 (logged to reduce skewness in its distribution).In order to minimize the effect of different industry boundaries, the numberof establishments (logged) is used as a control variable.5INDEPENDENT VARIABLESThese data were taken from the Census of Manufacturing, which recordedthe number of establishments, average number of wage earners, primaryhorsepower, capital, wages, cost of materials, value of products, and valueadded by manufacture (value of products minus cost of materials).All theindependent variables were measured prior to the dependent variable.Thusreciprocal causation from cross-sectional analysis is not a problem.6 Opera-tionalizations of these independent variables are given in Appendix 2.1.1.GROWTH.Chandler treats modern enterprise as a response to changesin the economic structure [ Pobierz całość w formacie PDF ]
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.Economic relationships especially with finance were also impor-tant.Unless there was a perfect capital market a dubious proposition itcan be assumed that the nature of past ties with finance explains why majorcorporations were founded in some industries rather than others.Rail-road rebates and kickbacks facilitated the growth of particular firms in in- 26 C H A P T E R T W Odustries like petroleum, sugar refining, and whiskey, often at the expense ofindependent firms.Interaction with railroad companies influenced majorsuppliers such as the steel, leather, lumber, and locomotive manufacturersto reorganize as part of the corporate institution.All these factors areignored in perspectives that focus on industries rather than firms.None-theless efficiency theory s emphasis on technology and markets makesthe industry an appropriate unit with which to test the theory, to which wenow turn.1EFFICIENCY THEORYEfficiency theory holds that corporations offer certain technological andfunctional advantages over other organizational forms.The advantagesusually cited include limited liability, continuity of existence beyond the lifeof founders, easy transfer of ownership shares, ability to raise capital, andsometimes legal privileges such as franchise, monopoly and even rights ofeminent domain (for example, see Seager and Gulick 1929; Porter 1973;Ransom 1981).The key concepts in this theory are technological develop-ment and rational, functional adaptation.Chandler makes two major points about the structural properties ex-plaining variation among industries: (1) The economic structure underlyinglarge firms arose between 1880 and 1920 and has been stable since then.The distribution of the leading two hundred firms among industries in 1917was virtually identical to that of 1973.This implies that the inherent char-acteristics of industries underlie the development of giant firms.(2) Nearlyall industries tried to create giant firms, but only some succeeded, so differ-ences were a matter not of motivation, but of structure.McCraw describesit: Try as they might, businessmen in peripheral industries simply couldnot make their combinations work, precisely because of the nature of thoseindustries (1981, 22).He cites failures such as United States Leather,American Cattle, Standard Rope and Twine, and National Cordage.Thefailed trusts tended to have a high ratio of variable to fixed costs, were laborintensive, lacked any important scale economics in either production ormarketing, and were thus easily overtaken by new entrants.Chandler sum-marized his argument: Therefore modern business enterprise first ap-peared, grew, and continued to flourish in those sectors and industries char-acterized by new and advancing technology and expanding markets (Chandler 1977, 8; see also his chap.8).He reasoned that when technolog-ical innovation increased the velocity of throughput, firms could reduce thecost of production per unit and increase the output per worker, producingeconomies of scale that rendered administrative coordination more efficientthan market coordination the visible hand of hierarchy replacing the invisible hand of the market.The crucial issue is whether this line of rea-soning holds up to empirical test. A T E S T O F E F F I C I E N C Y T H E O R Y 27DEPENDENT VARIABLEThe dependent variable is the extent to which industries incorporated inmajor corporations regardless of whether they were formed by merger orother means, in 1901 1904, the peak years of the corporate revolution.2Two aspects are distinguished.One is whether any firms in an industry tookthe form of a major corporation.The other is the extent to which thoseindustries with any major corporations were organized by corporate capi-tal.As detailed in Appendix 2.1, this concept has several facets.The datawere taken from the Manual of Statistics, an annual compilation of infor-mation on all firms listed on the major stock exchanges, a precursor to themore well known volumes like Standard and Poor s or Moody s Manual.The first dependent variable is a dummy variable (a binary yes/no variable)indicating whether the industry had any major corporations, that is, anycorporations with at least $1,000,000 total capital, listed in the Manual ofStatistics in the years 1901 1904.3 Of the 278 industries, only 104 hadmajor companies listed on the stock exchanges, while 174 did not.4The facet of the dependent variable is the extent to which industries withany major corporations were organized by corporate capital, which is oper-ationalized as the average aggregated value of authorized stocks and bondsfor the years 1901 to 1904 (logged to reduce skewness in its distribution).In order to minimize the effect of different industry boundaries, the numberof establishments (logged) is used as a control variable.5INDEPENDENT VARIABLESThese data were taken from the Census of Manufacturing, which recordedthe number of establishments, average number of wage earners, primaryhorsepower, capital, wages, cost of materials, value of products, and valueadded by manufacture (value of products minus cost of materials).All theindependent variables were measured prior to the dependent variable.Thusreciprocal causation from cross-sectional analysis is not a problem.6 Opera-tionalizations of these independent variables are given in Appendix 2.1.1.GROWTH.Chandler treats modern enterprise as a response to changesin the economic structure [ Pobierz całość w formacie PDF ]