Corporate Restructuring and the Consolidation of US Industry

Author(s): Julia Porter Liebeskind, Tim C. Opler, Donald E. Hatfield

Source: The Journal of Industrial Economics, Vol. 44, No. 1 (Mar., 1996), pp. 53-68
Published by: Blackwell Publishing
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THE JOURNAL OF INDUSTRIAL ECONOMICS

VOLUME XLIV
March 1996

0022-1821
No. 1

CORPORATE RESTRUCTURING AND THE

CONSOLIDATION OF US INDUSTRY*
JULIA PORTER LIEBESKIND, Tim C. OPLER, DONALD E. HATFIELD

This study examines the impact of corporate restructuring measured at the

industry level on industry concentration in 695 4-digit US industries in the
basic, manufacturing and services sectors between 1981 and 1989. The
results show a modest increase in median industrial concentration in sample
industries between 1981 and 1989. We find no evidence that selloffs of assets
at the industry level through horizontal mergers, acquisitions, and inter-firm
asset sales increased US industrial concentration during the 1980s.

I.

INTRODUCTION

DURING the 1980s, US industrial asset ownership changed at a rate not seen since
the turn of the century. Jensen [1993] reports that 35,000 mergers and
acquisitions with a total market value of $2.6 trillion took place between 1976
and 1990. Many of these transactions resulted in extensive business divestitures
and plant closings in target firms (Bhagat, Shleifer, and Vishny [1990]). At the
same time, numerous independent firms also reconfigured their operations by
selling lines of business and closing plants (Bowman and Singh [1990];
Comment and Jarrell [1994]).
This boom in corporate restructuring activity has provoked an intense debate
about its consequences for the US economy. Critics attribute the restructuring
boom to the Reagan Administration's relaxed enforcement of the CellarKefauver Act and argue that corporate restructuring has undermined US
industrial efficiency by increasing industrial concentration (Adams and Brock
[1988]; Shepherd [1990]). Consistent with this argument, the dollar value of
horizontal mergers increased from $25 billion in 1970-78 to $261 billion in
1979-87 (Blair, Lane and Schary [1991]). In addition, Bhagat, Shleifer, and
Vishny [1990] find that over two-thirds of the lines of business sold off following
hostile takeovers during the 1980s were bought by other firms in the same
industry. They conclude that a primary motivation for these selloffs was market
consolidation. Others argue that restructuring has improved US industrial
efficiency. For example, Jensen [1988, 1993] and Shleifer and Vishny [1992]
argue that mergers, selloffs and plant closures during the 1980s served to
discipline managers in inefficient firms, to eliminate excess capacity at both a
* We thank JenniferBethel, Harold Demsetz, Scott Lee, Marvin Liebernan, William Long, John
Lott, David Ravenscraft, Geoff Waring, Fred Weston and two anonymous referees for useful
comments. We also thank seminarparticipantsat the Universityof SouthernCalifornia,Texas A&M
University, and Southern Methodist University. Kishore Gawande, Marion Jones and Carl Voigt
providedvaluable assistance in data acquisitionand interpretation.
() Blackwell PublishersLtd. 1996, 108 Cowley Road, Oxford OX4 1JF,UK and 238 Main Street, Cambridge,MA 02142, USA.

53

JULIA PORTERLIEBESKINDETAL.

54

firmand an industrylevel, and to increasefirms' focus on the industriesin which

they held a competitive advantage.Consistentwith this argument,Lichtenberg
and Siegel [1987] find that total factor productivityincreases after mergersand
selloffs, while Lichtenberg [1992] and Comment and Jarrell [1994] find that
firms increasedtheir corporatefocus, their productivity,and their value during
the 1980s by divesting lines of business.
Despite this vigorous debate, there is little evidence documentingthe overall
patternof changes in US industrialconcentrationduringthe 1980s or indicating
whether corporaterestructuringwas related to any changes. To address these
issues, this study examines the relationshipbetween selloffs of lines of business,
measured at the industry level, and changes in industrialconcentrationin a
sample of 695 4-digit SIC-code industriesin all sectors of the US economy, and
in a variety of industry subsamples. We also investigate the effects of
establishment closures, additions, and expansion on industry concentration
duringthe same period.
This study has two main results. First, we find a modest increase in median
industryconcentrationbetween 1981 and 1989 in the full sample of 695 4-digit
US industriesand a largerincrease in median concentrationin the subsampleof
390 4-digit manufacturingindustries. Second, we find that selloffs of lines of
business measuredat the industrylevel are significantlyand negativelyassociated
with change in industryconcentrationduring the 1980s in both manufacturing
and non-manufacturingindustries. This evidence is inconsistent with the
argumentthat mergersand selloffs duringthe 1980s led to increasesin industrial
concentrationacross broad samples of US industries.
The plan of this paperis as follows. Sections II and III describethe measuresof
corporaterestructuringused in this study, other variables, data, and methods.
Section IV reportsevidence on the extent of corporaterestructuringduring the
1980s. Section V reports evidence on the relationships between corporate
restructuringand changes in industrialconcentration.Section VI concludes.

II. DEFINITIONAND MEASUREMENTOF CORPORATERESTRUCTURING

We define seven measures of corporate restructuringin this study. Each

restructuringmeasure is estimatedusing establishment-leveldata aggregatedto
the firm and industrylevel in the two-stage process as follows:
Stage 1: Establishments in each industry are classified into restructuring
categories
This procedureis illustratedin Table I. First, the status of each establishmentin
any given industryis classified accordingto whetherit was: (a) continuouslyin
operationin thatindustrybetween 1981 and 1989, (b) closed down between 1981
and 1989, or (c) added to that industry between 1981 and 1989. Any
establishmentthat was continuously in operationbetween 1981 and 1989 was
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RESTRUCTURINGAND CONSOLIDATIONOF US INDUSTRY

TABLEI
DEFINITION
OF INDUSTRY-LEVEL
RESTRUCTURING
CATEGoRIES5USED TO CLASSIFYINDUSTRY
ESTABLISHMENTS

Change in the status of industryincumbentfirms:

Change in the status of
industryestablishments:
Establishmentsurvives and:
(i) is sold to anotherfirm
between 1981 and 1989

Firm exits
between 1981
and 1989
SELLOFFI
EXIT

(ii) is not sold but is expanded

between 1981 and 1989
Establishmentis closed
between 1981 and 1989:

Firm remains
as incumbent
1981 and 1989

Firm enters
between 1981
and 1989

SELLOFFI
STAY
EXPAND

CLOSE/EXIT

Establishmentis added to the

industrybetween 1981 and
1989:

CLOSE/STAY
ADD/STAY

ADD/IENTER

REachrestructuring
variableis definedin termsof both:

(i) Changein thestatusof theestablishment

between1981and1989(i.e.,establishment
survived
butownership
is changed;establishment
is expanded;
establishment
is closed;establishment
is added).
(ii) Change(orno change)in thestatusof theparentfirmregarding
its industryincumbency
(i.e.,parentfirm
exists;parentfirmremainsin theindustry;
parentfirmenters).
Notethatthevariables
aredefinedin termsof establishment
statusandparentstatusin 1981.Thisallowsdefinition
of establishments
thatchangeownership
in termsof being"soldoff"by a parentfirmrather
thanasbeing"bought"
by anotherfirm.

furtherclassified according to whether it was sold off or expanded during this

period. Second, the status of each restructuredestablishment'sparent firm is
classified accordingto whether it remainedas an incumbentbetween 1981 and
1989; exited the industrybetween 1981 and 1989; or enteredthe industryduring
this period. This classificationprocedureresultsin seven restructuringcategories,
illustratedin the boxes in Table I.
Stage 2: Employee-weightedindustry-levelrestructuringintensityvariables are
estimated
The total volume of each type of restructuringin each industryis estimated in
terms of the proportionof total industryemployees in 1981 thatwas employedin
establishmentsin each of the restructuringcategoriesdefined in TableI. For the
purposes of this study, the most importantof the seven restructuringintensity
variablesis SELLOFF/EXIT,
which capturesall horizontalmergerand inter-firm
asset sales between 1981 and 1989. Ceterisparibus, horizontalmergers always
increase industrialconcentration.Selloffs that result in industry exit will also
increase industrialconcentrationif the lines of business in question are sold to
otherexisting incumbentfirms,as Bhagat,Shleifer,and Vishny's [1990] evidence
suggests occurredduring the 1980s. If lines of business are sold to new firms
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JULIA PORTERLIEBESKINDETAL.

instead,inter-firmasset sales will result in decreasesin concentration.Selloffs of

establishments by continuing incumbent firms (measured by the variable
SELLOFFISTAY)
will only increase industryconcentrationif small incumbents
sell establishmentsto large firms (Hannah and Kay [1981]); otherwise, such
selloffs will decrease industryconcentration.
Plant closures, additions, and expansions may also have had a significant
impact on industrialconcentrationduring the 1980s (Hannahand Kay [1981]).
Closure of capacity by large firms dilutes industrialconcentration,regardlessof
whetherthese firmsexit or not. Concomitantly,closure of capacityby small firms
increases concentration.Therefore, both CLOSE/EXITand CLOSEISTAY
may
have a significantimpact on industryconcentration,though the directionof their
effect cannot be predicted.Note, however, that plant closures by existing firms
reduces the number of incumbentfirms remaining in the industry,which may
facilitate coordinationamong the remainingfirns, even if such closures do not
increase concentrationper se. If large incumbent firms add or expand more
establishmentsthansmall firns, concentrationwill increase,andvice-versa(Lane
[1993]). Therefore,both ADD/STAYandEXPANDISTAY
may have a significant
effect on industryconcentration.Finally,the addition of new establishmentsby
entering firms (measuredby ADDIENTER)can be expected to reduce industry
concentrationbecause de novo entry is usually small scale and always adds new
firms.

III. OTHERVARIABLES,DATA,AND METHODS

(i) Dependent Variables

Change in industrialconcentrationis measuredas the change between 1981 and
1989 in two standardmeasures of industry concentration:the four-firmsales
concentrationratio and the HerfindahlIndex of sales concentration.We use two
measures of sales concentrationbecause choice of measure can bias results
(Kwoka [1981]). Both measures are estimated in terms of the value of final
shipments of incumbentfirms in 1981 and 1989. The four-firmconcentration
ratio is estimatedas the proportionof the total value of final industryshipments
that is accounted for by the four largest firms in that industry.The Herfindahl
index is estimatedas the sum of the squaredmarketsharesof all incumbentfirms
where market share is estimatedas the ratio of the value of final shipments of
each firm to the total value of final shipmentsin the industry.
(ii) Control Variables
The regressions include the change in the estimated minimum efficient scale
(CHMES) between 1981 and 1989 because a number of studies show that
industryplant size and industryconcentrationare highly correlated(Curry and
George [1983]; Schmalensee[1989]). We measureCHMESas percentagechange
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RESTRUCTURINGAND CONSOLIDATIONOF US INDUSTRY

57

in median establishmentsize (measuredin terms of employees).' The regressions

also control for industry concentrationin 1981 (INDCONC81) because prior
levels of industryconcentrationhave been shown to be a significantdeterminant
of change in concentration.In addition, the regressions control for industry
regulation and growth. In industries such as utilities and banking, horizontal
business combinationsmay be prohibited;this is controlledfor using a dummy
variable (REGULATE).Because industry growth may influence concentration,
change in industry sales is controlled for using the percentage increase in the
value of total industryshipmentsbetween 1981 and 1989 measuredin constant
1981 dollars (CHSALES).
(iii) Data
The seven measuresof industry-levelrestructuringand the measuresof industrial
concentration,MES, and industry sales were estimated using TRINET Inc.'s
Large Establishment Database. An important advantage of using TRINET
(ratherthan the US Census of Manufactures)is that it provides informationon
non-manufacturingsectors of the US economy. TRINETcovers over 80 percent
of all establishmentsin the US and over 95 percentof establishmentsowned by
public firns; as such, it is consideredto be reliablefor the purposesof analyzing
industry structure(Kwoka [1978]).2 The TRINET data include the 4-digit SIC
code of each establishment'sprimary industry, its number of employees, its
currentdollar value of sales, its address and telephone number, and its parent
company identificationnumber.3These data can be aggregatedto the industry
level using the 4-digit SIC code and to the firm level using the parentcompany
identification number. Further details of the TRINET data are given in the
Appendix.
If an establishmentis redeployedbetween one industryand another,TRINET
will usually recordthat establishmentas being closed in one industryand newly
added to another.Therefore,the estimatesof ADDIENTER,ADDISTAY,
CLOSEI
EXIT,and CLOSEISTAY
reflect not only actual new plant addition and actual
plant closure, but also the redeploymentof establishmentsacross industries.In
addition,TRINETdata cover only establishmentslocated in the US (i.e. all USbased facilities of US and foreign-ownedfirms, but not overseas establishments
of US firms). This permits us to analyze the effects of restructuringon the
concentrationof the value of shipments from US establishments,but not the
effects of restructuringon the concentration of the value of shipments of
' We also used two othermeasuresof minimumefficient scale in the regressions,with no effect on
results: (i) scale variance, measured as the inter-quartilerange of establishmentemployment over
median establishmentemployment,and (ii) the first quartileof establishmentemployment.
2 See Appendix for details of Kwoka's findings and furitherdetails of the Large Establishment
Database.
3TRINET usually lists multiproductestablishments as separate establishments,with separate
identificationnumbers.Employmentand sales figures are then attributedto each industry.In 1989,
about 2.5 percentof all establishmentsin TRINETwere listed in more than one industry.
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JULIA PORTERLIEBESKINDETAL.

58

establishmentsowned by US firms. Also, not all marketsare national in scope,

even though they are treated as such using the TRINET data.4 TRINET's
coverageof small establishmentshas improvedover time, and in general,datafor
larger establishments are more likely to be accurate than for smaller
establishments. Consequently, we follow Lieberman and Hatfield [1993] by
restrictingour sample to establishmentswith 100 or more employees and to
industrieswith 5 or more establishmentsof this size.5 This truncatingprocedure
reduced the numberof 4-digit SIC industriesin the sample from 745 to 695.6
(iv) Method and Samples
The relationship between industry-levelrestructuringand change in industry
concentrationis analyzed using OLS regressionsand two measures of absolute
change in industrialconcentrationbetween 1981 and 1989 on seven measuresof
industry-level restructuringintensity and four control variables. Following
Krasker,Kuh, and Welsch [1983] we conducted regressions with and without
outliers.Ourresultswere substantivelyunchangedby the presenceof outliers;we
therefore report variable estimates and regression results that include outlying
values. We conduct regressionson the full sample of 695 4-digit SIC industries
from the basic, manufacturing,and service sectors, and on the subsamples of
manufacturingand non-manufacturingindustries,producerand consumergoods
industries, and industries with low, relatively high, and high levels of
concentrationin 1981.

IV INDUSTRY-LEVELRESTRUCTURINGACTIVITYAND CHANGE IN US INDUSTRY

CONCENTRATION,1981-89

The median and mean values of the seven measures of industry-level

restructuringintensity used in the study are shown in Table II. Panel A shows
values for all 695 industries in the sample; Panel B shows values for the
subsample of 390 manufacturingindustries.The median level of employment
change due to selloffs by exiting firms(SELLOFFEXIT)in both samples is quite
high: 17 percentin the full sample,and 18 percentin manufacturingindustries.In
contrast,the median level of employmentchange due to selloffs by finns that
is near zero. Mean values
remainedincumbentsthrough 1989 (SELLOFFISTAY)
for both these variables are higher, indicating skewness in the distributionof
selloff activity across industries.
4The problemsof using SIC-definedindustriesto define marketsare well known. For a discussion,
see Scherer[1980].
5 We also conductedanalyses using minimum establishmentsizes of 50 and 200 employees; this
had little effect on the estimate of CHMESor on the regressionresults.
6In 1987 a numberof new SICs were createdand severalold SICs were consolidated.To adjustfor
these changes, we consolidatedseveral SICs in the dataset,reducingthe total numberof 4-digit SICs
by about 3 percent. In addition, we excluded 4-digit industries above 7999 from the sample to
eliminate industriesdominatedby non-profitorganizations.
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59

TABLEII
INDUSTRY-LEvEL
RESTRUCTURNGAcrlvrrY 1981-1989a

Variable
A. For 695 4-digit industries
SELLOFF/EXIT
SELLOFF/STAY
CLOSE/EXIT
CLOSE/STAY
ADD/ENTER
ADD/STAY
EXPAND/STAY
Net Additionc

Median

Meanb

Std. Dev.

17.03

22.95

41.01

0.00
41.34
10.84
29.38
7.21
-0.21
- 11.90

0.95
42.03
14.11
68.85
13.08
-0.73
25.05

2.54
19.27
14.13
154.40
17.15
13.17
158.07

B. For 390 manufacturingindustries

SELLOFF/EXIT
18.22
SELLOFF/STAY
0.00
CLOSE/EXIT
37.70
CLOSE/STAY
11.59
ADD/ENTER
27.15
ADD/STAY
8.06
- 0.84
EXPAND/STAY
- 18.26
Net Addifionc

21.14
1.15
37.72
13.40
21.07
12.74
- 1.76
- 13.00

18.45
2.46
15.71
10.20
30.87
14.44
11.83
41.23

aFordefinition of measures see Table I and the text. All variables are measured in terms of percentage of total
industryemployees in 1981, and each measurethereforehas a potentialvalue of between 0 and 100.
bUnweighted
cThis variableis providedfor illustrativepurposes only and is estimatedas:
[(total employeersof plants added or expandedbetween 1981 and 1989) - (total employees of plants closed
between 1981 and 1989)1/Totalindustryemploymentin 1981.

The median level of employment change due to establishmentclosures by

exiting finns (CLOSEIEXI) is very high: 41 percent in the full sample, and 38
percentin manufacturingindustries.In contrast,the median level of employment
is about
change due to establishmentclosure by incumbentfirms(CLOSE/STAY)
11 percent in both samples. (Recall that the measures of plant closure and
addition include redeploymentof establishmentsacross industries,as discussed
in Section III.) The employmentchange due to plant addition by new entrants
(ADDIENTER)is also high: 29 percentin the median industry,and 27 percentin
the median manufacturingindustry.The median rate of employmentchange due
to plant additions by incumbents(ADDISTAY)is much lower: 7 percent in the
median industry, and 8 percent in the median manufacturingindustry.Mean
values are much higher for both these variables in the full sample7 The
7 The mean value of ADD/ENTERin the full sample(69 percent)appearsto be extraordinarily
high.
However, it can be validated by comparing our estimate of ADD/ENTERfor the subsample of
manufacturingindustriesto estimatesobtainedby Dunne, Roberts,and Samuelson[1988]. They find
an unweightedrate of new plant addition of 25.3 percent for the five year period 1977-82 and for
plants with 250 or more employees in the manufacturingsector. This rate is equivalent to an
unweightedrate of 37.9 percent for the eight year period we analyze. In comparison,our weighted
estimate of ADD/ENTERfor manufacturingindustries is 21.07 percent, even though our sample
includes smaller plants, which can be expected to increase reportedlevels of entry. (See Dunne,
Roberts, and Samuelson [1988] for a discussion of this issue.) This suggests that our estimates are
conservative.
(j

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JULIA PORTERLIEBESKINDETAL.

is negative (but
employment change due to plant expansion (EXPANDISTAY)
very small) in both the full sample and the manufacturingsubsample.
For illustrative purposes, Table II also provides estimates of the total net
change imindustryemploymentdue to restructuringactivity between 1981 and
1989. For the full sample, the median industryexperienced a net reduction in
employmentof about 12 percentdue to plant closures,additions,and expansions;
in manufacturing,the net reductionwas about 18 percent. Note that the mean
value for this variable in the full sample is 25 percent, indicating that some
(mainly non-manufacturing)industries grew very rapidly between 1981 and
1989.
TableIII shows the changes in the two measuresof industryconcentrationused
in the study between 1981 and 1989.8 For all industries,median concentration
increasedslightly:the median change in four-firmratio representsan increaseof
3.4 percent between 1981 and 1989, while the median change in Herfindahl
index representsan increaseof 6.4 percent.Therefore,concentrationincreasedin
more than half of all US industriesduringthe 1980s. In manufacturingindustries
concentrationincreasedmore: the median change in four-firmratiorepresentsan
increaseof 14.0 percent,while the median change in Herfindahlindex represents
an increase of 20.3 percent.

THE DETERMINANTSOF CHANGE IN US INDUSTRYCONCENTRATION,1981-89

We use OLS regressionsto explain the change in industry-levelconcentration

with seven measures of industry-levelrestructuringand a number of control
variables. Lacking a structuralmodel appropriatefor describing change in the
many differentindustriesin our sample, we wish to interpretour regressionsas
under-identifiedreduced forms of some larger but unknown structuralsystem
(Schmalensee [1989]).
TableIV reportsregressionsusing the full sample of 694 4-digit industriesand
the subsampleof 390 4-digit manufacturingindustries.The most importantresult
of these regressionsis that selloffs of establishmentsby exiting firms(SELLOFFI
EXI) are shown to be significantlyand negatively associated with changes in
concentrationin three of the four regressions. Selloffs of establishmentsby
are also significantlyand negatively
survivingincumbentfirms(SELLOFFISTAY)
associatedwith changes in industryconcentrationin the full sample, suggesting
that large incumbentfirms sold off assets to smallerfirms duringthe 1980s.
The regressions show that other types of corporate restructuringare also
significantdeterminantsof changes in industryconcentration.First,the closureof
establishmentsby exiting firms (CLOSEIEXI) is significantly and positively
associated with changes in industry concentration in the subsample of
manufacturingindustries. This suggests that establishments were closed by
8The Herfindahlindex of industryconcentrationis scaled between0 and 1, where an industrywith
an index of 1 has all its employees in one firm. Herfindahlindices are frequentlyrescaled from 0 to
10,000 as in the Departmentof Justice'sMerger Guidelines.
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RESTRUCTURINGAND CONSOLIDATIONOF US INDUSTRY

TABLEIII
INDUSTRY CONCENTRATION AND CHANGE IN INDUSTRY CONCENTRATION

Variable
A. All industries:
(n= 695)
Four Firm concentrationratio:
1981
1989
Change in FourFirm concentrationratio between
1981 and 1989b
Hirschmann-Herfindahl
Index of concentration:
1981
1989
Change in Hirschmann-Herfindahl
Index of
concentrationbetween 1981 and 1989b
B. Manufacturingindustries:
(n = 390)
Four Firm concentrationratio:
1981
1989
Change in Four Firm concentrationratio between
1981 and 18989b
Hirschmann-Herfindahl
Index of concentration:
1981
1989
Change in Hirschmann-Herfindahl
Index of
concentrationbetween 1981 and 1989b

1981 TO 1989

Median

Meana

Std. Dev.

0.4508
0.4515
0.0157

0.4874
0.4837
-0.0037

0.2324
0.2071
0.1664

0.0781
0.0792
0.0050

0.1201
0.1146
-0.0055

0.1238
0.1085
0.1174

0.3862
0.4412
0.0541

0.4170
0.4769
0.0599

0.1919
0.1967
0.1205

0.0607
0.0772
0.0123

0.0823
0.1060
0.0237

0.0694
0.0915
0.0700

'Eachindustryis equallyweighted.

in TableIVandV
variableusedin theregressions
bChangebetween1981and1989is the dependent
reported

smaller,ratherthanlarger,manufacturingfirns, consistentwith the argumentthat

restructuringthrough plant closures during the 1980s served to consolidate
manufacturingcapacity (Jensen [1993]). As expected, the addition of establishments by enteringfirms (ADDIENTER)is significantlyand negativelyassociated
with changes in industry concentrationin all four regressions. In contrast, in
addition of capacity by incumbentfinns (ADDISTAY)
is significantlyassociated
with increases in concentrationin three out of four regressions, suggesting that
large incumbentfirms expandedtheir marketshare duringthe 1980s by adding
new capacity.Neither closures of capacity by incumbentfirms (CLOSEISTAY)
nor expansions of capacity (EXPANDISTAY)
have any consistently significant
association with changes in industryconcentration.
With regardto the control variables,concentrationin 1981 (INDCONC81)is
significantly and negatively associated with industry concentrationin all four
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JULIA PORTERLIEBESKINDETAL.

62
N F

'There
Value
CHMES
Intercept
are*(**)(***)Adjusted
CHSALES
ADD/STAY
no
R2
lNDCONC81 ADD/ENTER
REGULATEa
(industries)
CLOSE/EXIT
CLOSE/STAY
EXPAND/STAY
SELLOFF/EXIT
denotes
SELLOFF/STAY

EFFECTS
OF

regulated
significance
at
the 695
manufacuring

CORPORATE

Full
Four

(-1.37)
(-0.23)(0.80)(-1.96)
(-0.83)
0.3440.0001
-0.0041
-0.0005
0.1950 Firm
-0.0003
-0.0006 0.0003
-0.3403
0.00080.0010
34.13***
(-3.87)***
(9.10)***
(3.87)***
(-7.50)*** -0.00008
(-14.98)***
(3.06)***
(4.17)***0.0149
Sample

10%

(5%)
industries.

RESTRUCTUR

(1%)

ON

Concentration

level.

Ratio:

695

INDUSTRY

Full

CONCENTRA
(-1.24)
(-0.48)(1.08)
(-0.02)
0.3960.0001
(1.95)*
-0.0001
-0.0001
0.0001
0.0003
-0.0032
-0.0003
0.0766 Herfindahl TABLE
0.00030.0005
-0.0004
-0.5730
(-2.29)**
42.32***
(5.85)***
(-3.34)***
(-3.01)***
(4.85)*** (-19.62)***(2.32)**
Sample
IV

Index:
Dependent
1981-1989.
variable
=

390
(0.53)(-1.74)*
(0.99)
0.2160.0004
(-1.83)*
-0.0009
-0.0039
0.1024
-0.0014
0.00030.0016
-0.0013
0.0018
0.0003
-0.1468
(3.14)**
(-2.17)**
11.72***
(-4.76)***
(3.86)***
(3.71)*** (-4.68)*** (3.05)***

(Ordinary

Four

least
Change
Firm in:
Manufacturing
Squares

Concentration
Regressions,
Ratio:
t-statistics
in
390
(-1.60)
(0.58)
(-0.62)
(0.68)(-1.20)
-(0.35)(1.61)
0.165
0.0105
-0.1126 0.0008
-0.0004
-0.0003
0.00120.0002-0.0016
-0.0010
0.0004 (2.12)**
8.68***
-0.00006(-5.39)*** (4.37)***
(5.54)***

Blackwell Publshers Ltd. 1996

Herfindahlparentheses.)
Manufacturing
Index:

RESTRUCTURINGAND CONSOLIDATIONOF US INDUSTRY

63

regressions, indicating that increases in concentrationduring the 1980s mainly

took place in those industriesthat were the least concentratedin 1981. Industry
growth (CHSALES)is significantly and positively associated with changes in
concentration,while change in median plant scale (CHMES) and regulation
(REGULATE)have no significanteffect.
Table V presents summary results for regressions in the subsamples of
producer and consumer goods industries, non-manufacturingindustries, and
industries with low, relatively high and high levels of concentrationin 1981.
Consistentwith the regressionresultsin TableIV,TableV shows thatSELLOFFI
EXITis significantlyand negatively associated with change in concentrationin
producerand non-manufacturingindustries.SELLOFF/EXIT
is also significantly
and negatively associated with changes in concentrationin industrieswith low
concentrationin 1981. Also consistent with the results of the main regressions,
SELLOFFISTAYis significantly and negatively associated with changes in
concentration only in non-manufacturingindustries, while CLOSE/EXITis
significantly and positively associated with changes in concentrationin both
subsamples of manufacturing industries, and also in industries with low
concentrationin 1981. ADDISTAYis shown to be significantly and positively
associated with changes in concentrationin consumer goods industries,while
EXPANDISTAY
is shown to be significantly and positively associated with
changes in concentrationin non-manufacturingindustries,even though it is not a
significantdeterminantof changes in concentrationin the main regressions.
The most importantresult of these regression analyses, given the purpose of
this study,is the consistentlysignificantand negativeassociationwe find between
selloffs measured at the industrylevel and changes in industrialconcentration
during the 1980s. Recall that our measures of selloffs capture all horizontal
mergers and inter-firmasset sales in sample industriesbetween 1981 and 1989.
Therefore,this finding is inconsistent with the argumentthat relaxed antitrust
enforcementduringthe 1980s resultedin mergersand inter-firmasset sales that
increased industrial concentrationacross broad samples of US industries. In
addition,the significantand economically importantnegative associationwe find
between prior levels of industry concentration(INDCONC91) and changes in
concentrationis consistent with a claim of continued antitrustvigilance. Some
caution is warrantedin arriving at this interpretation,however, because we
consider only broad samples of 4-digit industriesin this study. Therefore,our
results cannot be interpretedas ruling out the possibility that some horizontal
mergersand inter-firmasset sales did resultin increasesin concentrationin some
US industriesduringthe 1980s.
The regressions do show that additions of capacity by large incumbentfirms
between 1981 and 1989 increasedindustryconcentration.However,this finding
indicates that the large finns that increasedtheir marketshare duringthe 1980s
did so by internalexpansion, ratherthan by acquiringrival firms.

Blackwell Publshers Ltd. 1996

JULIA PORTERLIEBESKINDETAL.

64
*

High(*)

High:

THE

Low:

Four Four Industry

Producer.
(***)
Relatively
Consumer:
firm:
firm:Herfindahl:
Four-firm:
Four-firm:
Four-firm:
Four-firm:
Herfindahl
Herfindahl
Herfindahl:
Herfindahl:
Herfindahl:
Concentration
Manufacturing:
high:
in
denotes
Concentration:
Non-manufacturing:
concentration
Subsamples:
0.10
1981:a
<
aIndusty

significance
categories
at
-0.42
-1.30 -1.42
arethe -2.17*
Herfindahi

EFFECTS
OF

-1.35
-1.72*1.90*

-2.19**
-3.48***
-4.08***
-2.68***

10%
Index
defined
<
for(5%)
0.18;
-0.18
-0.14 -0.77
each
(1%)-1.57
-2.49*-0.06
Low
level.
4-digit

-2.14**

CORPORATE

STAY
SELLOFFI

-1.32
-1.75 -0.81
0.03 -0.85
1.83*

REsTRucTuRING

STAY
ON
SELLOFF!

SIC

REPORTED
INDUSTRY

0.51
0.91
-0.08 0.66
1.12 -0.30
Concentration:
industry

0.20
0.92 0.49
1.79*1.82*
1.79*

STAY FROM
EPAND!
OLS

Herfindahl
following

1.52
1.44
-0.46
Index
1.81* 2.14** 0.57
-1.72*1.18
2.84**
3.10*** 2.93**
<
3.24***
Department
0.10.
of
Justice 0.17
-0.83 0.19
0.25 -0.72
1.70*

-0.57 -0.50
1.00 -0.28
0.30
-1.79**

CONCENTRATION,

EXIT
CLOSE!

REGRESSIONS:
TABLE
V
SEE

1981-1989
IN
TABLE
STAY IV
CLOSE!
FOR
SELECTED

guidelines
as

FULL

0.54
-1.60 -1.35*
0.02
follows: -2.41***
-5.07***
-4.85***
-3.83***
-5.16***
-6.32*** -4.92***
-4.52***

ADD!
ENTER

MODEL)
SUBSAMPLES

High

OF

0.11
1.11 0.05
0.79
1.32
0.88 1.83*
0.43
1.68*
5.39***
3.74***
3.00***

STAY
ADD!

Concentration:
0.22
0.19 0.07
0.17 0.15
0.50
Herfindahi

INDUSTRIES

0.21 0.20
0.23
0.48
0.36 0.42

R2

(T-STATISTICS,

Index
>
0.18;

9.09***
7.79***
3.38***
8.30***
18.16***
8.29***
12.86***29.49***
3.90***
4.47***
2.17***
15.63***

145145 139138 411411

Relatively
?

Blackwell PublishersLtd. 1996

R2,

F-Value

AND

305305 93 93

2947
297

VALUES

RESTRUCTURINGAND CONSOLIDATIONOF US INDUSTRY

65

VI. SUMMARYAND CONCLUDINGREMARKS

The purpose of this study has been to document the changes in US industrial
concentrationduringthe 1980s and to investigatewhethercorporaterestructuring
was a determinantof any changes in concentration.Although there has been
extensive debate regardingthe effects of corporaterestructuringon US industry,
we are not awareof any other study that has examined this issue in detail. This
study has sought to fill this gap in our knowledge about the aggregateeffects of
corporate restructuringand to inform the on-going policy debate about the
regulationof corporatecontrol transactionsin the US. Based on a broad sample
of 695 4-digit US industries,and a numberof industrysub-samples,this study
finds no evidence thathorizontalmergersor inter-firmasset sales were associated
with increasingindustryconcentrationduringthe 1980s.
JULIAN PORTERLIEBESKIND,
School of Business Administration,
Universityof SouthernCalifornia,
Los Angeles,
California 90089-1421,
USA

ACCEPTEDMAY 1995

TIM C. OPLER,
Departmentof Finance,
Max M Fisher College of Business,
Ohio State University,
1775 College Road,
Columbus,OH 43210,
USA
and
DONALD E. HATFIELD,
Departmentof Management,
R. B. Pamplin College of Business,
VirginiaPolytechnicInstituteand State University,
Blacksburg, VA.24061-0233,
USA
APPENDIX: DETAILS OF TRINET INC.'S LARGE ESTABLISHMENT DATABASE
TRINET, Inc.'s Large Establishment Database was originally developed by Economic
Information Systems, Inc., (EIS) for sale to companies involved in direct industrial
marketing. The database contains a variety of information on manufacturing and nonmanufacturing establishments with more than 20 employees in the US only. The data are
derived from a variety of sources, including state and county industrial directories,
corporate reports, trade association and Chamber of Commerce directories, the trade press,
telephone directories, and mailing lists. Data are cross-checked with the Census Bureau's
County Business Patterns, and by telephone calls. All of the data are subject to continuous
update and review; this is essential, because the database is sold for marketing purposes.
(C Blackwell PublishersLtd. 1996

JULIA PORTERLIEBESKINDETAL.

66

The Large Establishment Database was first established in 1968. In the late 1970s, the
database was sold by EIS to TRINET, Inc. In this study, we refer to this database as the
"TRINET data." New versions of the database were issued commercially by TRINET each
year during the 1980s. Data were released for research purposes only on tape in 1981,
1983, 1985, 1987 and 1989. Data for earlier years were obtained by some researchers from
EIS. (See, for example, Montgomery and Wemerfelt, 1988, who use EIS data from 1976.)
A detailed discussion of the reliability of the Large Establishment Database is given by
Kwoka, "Economic Information Systems, Inc. (EIS) Market Share Data: Nature,
Reliability, and Uses," American Bar Association Antitrust Journal, 47, pp. 1089-1098.
Kwoka considers the Large Establishment Database to be generally reliable:
"The sheer volume of these data make total accuracy impossible, of course, but by and
large, the data are judged to have substantial reliability." (Kwoka, 1978, page 1093.)
Comparing the TRINET data and Census market share data for 314 manufacturing
industries in 1972, Kwoka found a cross-sectional correlation of 0.922 for the four-firm
concentration ratio (CR4). However, he noted that deviations between the Census data and
the TRINET data are not completely random, as follows:
The diferences in concentration between Census data and TRfINETdata are larger
for small industries than for large industries.
In this study, we correct for this possible source of bias by eliminating very small
industries from our sample. (See page 5 of the text for details.)
(ii) The differences in concentration between Census data and TRINET data are smaller
in more concentrated industries.
This bias will not result in failure to measure industries where concentration
increased between 1981 and 1989, which are of interest in this study.
(iii) There is some systematic over-estimation of concentration in the TRINET data.
The most likely source for this bias, in our view, is that TRINET includes only
establishments employing 20 or more persons. Consequently, concentration will be
over-estimated for industries with many small establishments operated by many small
firms. In addition, this bias can be expected to create larger differences between the
Census data and the TRINET data in measuring the Herfindahl index, than in
measuring the four-finn ratio.
(i)

We compared the concentration ratios in the Census of Manufactures with those

estimated in this study for the manufacturing sector. Unfortunately, we were unable to
compare these for identical years, as did Kowka, because the Census of Manufactures was
conducted in 1982 and 1987 only, whereas we use TRINET data from 1981 and 1989. In
addition, the classification of 4-digit SIC codes in the Census was changed between 1982
and 1987. Nonetheless, we find a cross-sectional correlation in the four-firm ratio of 0.665
(p < 0.001) between TRINET 1981 and Census of Manufactures 1982 data, and 0.761
(p < 0.001) between TRINET 1989 and Census 1987 data. The cross-sectional
correlations for the Herfindahl index are lower: 0.559 (p < 0.001) and 0.478 (p < 0.001)
respectively. This lower correlation is most probably due to systematic biases in the
TRINET and Census data which differentially affect measurement of this ratio. First,
establishments with less than 20 employees are not reported in TRINET but are included
in the Census estimates of concentration. Second, the Herfindahl ratios in the Census are
estimated for only the top 50 finns, whereas we estimate them for all firms in a given
industry. In our sample, 73% of manufacturing industries in 1981 had more than 50 firms,
and 81% had more than 50 firms in 1989.
Because data on large establishments, and the establishments of larger finns, is more
likely to be reliable than data on smaller establishments, and the establishments of smaller
finns (biases that also apply to the Census data, as discussed by Dunne, Roberts and
C) Blackwell Publshers Ltd. 1996

67

RESTRUCTURINGAND CONSOLIDATIONOF US INDUSTRY

TABLEA.I
ESTABLISHMENTS
ADDED BY SIZECLASS BETWEEN1981 AND 1989 ACCORDiNGTO CoUNTRY
BuSINESS PArrERNS

Yearand Source

Size Class:
20-49

50-99

100-249

250-499

500-999

1000 <

379,303
495,678
+30.7%

130,880
172,323
+31.7%

71.453
95,291
+33.4%

20,209
23,898
+ 18.2%

7,986
9,437
+ 18.2%

4,700
5,489
+ 16.8%

28,370
30,832
+8.7%

23,121
24,327
+5.2%

8.902
8,799
- 1.1

3,923
3,679
- 6.3%

2.354
1,986
- 16.5%

A. All industries:
1981:
1989:
Change:

B. Manufacturingindustriesonly:
1981:
1989:

Change:

56,179
59,965
+6.7%

Samuelson [1988]), and because TRINET has increased the accuracy of its reporting of
small establishments over time, we restrict our sample in this study to establishments with
100 or more employees. However, this raises the question of whether such a truncation
procedure differentially eliminates smaller establishments added between 1981 and 1989,
resulting in biases of concentration ratios and MES. As shown in Table A.I below,
according to Country Business Patterns, the highest rates of overall establishment addition
between 1981 and 1989 took place among establishments with 100-249 employees. Rates
of addition were lower in both larger and smaller establishments. In contrast, in the
manufacturing sector, rates of establishment addition were higher among smaller
establishments, and the number of large establishments decreased. To examine possible
bias of our results from using the 100 employee cutoff level, we conducted additional
regressions that included smaller establishments. We found that our regression results were
not highly sensitive to the elimination of smaller establishments in either the full sample of
695 industries, or in the subsample of 390 manufacturing industries.

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(D Blackwell PublishersLtd. 1996