It seems to me like many of those business conglomerates are privately held. The stock market seems to prefer if businesses parts that have no synergy with the main business get sold off.
On the stock market it’s easy for capital owners to diversify their assets. When companies are privately held building such business conglomerates might be the way to diversify.
If an investor wants to invest in a couple of different markets then that investor can choose some companies in those markets and buy shares. A single company in two non-synergistic markets is just silly from this perspective, if it was instead two companies investors would be more able to specifically choose which part they like.
If the company doesn’t have shares (privately held) then this incentive does not exist.
In “Capitalism and Freedom” Milton Freidman has a section about diverse companies. The book is probably dated but some aspect of the 1960′s American tax system meant that if a company you owned shares in paid you a dividend you paid tax on it, but if they re-invested a profit that was not taxed. This meant that, if (cartoon example) 100% of the shareholders in Company A wanted to take their dividends and invest them in a start-up that does X, the same thing can be done more tax efficiently by Company A instead not paying any dividends and using the money to set up a new arm that does X (the new arm essentially being a separate startup company in all but name).
Freidman thought this was a reasonably serious distortion on markets and that investors should have to pay tax on re-invested profits at the same rate as dividends, to correct for it.
Perhaps some aspect of tax systems in some countries is having a similar effect, that taking some money out of my lawnmower company to invest in a chip foundry would incur more taxes than expanding the company to do both lawnmowers and computer chips.
It seems to me like many of those business conglomerates are privately held. The stock market seems to prefer if businesses parts that have no synergy with the main business get sold off.
On the stock market it’s easy for capital owners to diversify their assets. When companies are privately held building such business conglomerates might be the way to diversify.
This makes a lot of sense actually.
If an investor wants to invest in a couple of different markets then that investor can choose some companies in those markets and buy shares. A single company in two non-synergistic markets is just silly from this perspective, if it was instead two companies investors would be more able to specifically choose which part they like.
If the company doesn’t have shares (privately held) then this incentive does not exist.
In “Capitalism and Freedom” Milton Freidman has a section about diverse companies. The book is probably dated but some aspect of the 1960′s American tax system meant that if a company you owned shares in paid you a dividend you paid tax on it, but if they re-invested a profit that was not taxed. This meant that, if (cartoon example) 100% of the shareholders in Company A wanted to take their dividends and invest them in a start-up that does X, the same thing can be done more tax efficiently by Company A instead not paying any dividends and using the money to set up a new arm that does X (the new arm essentially being a separate startup company in all but name).
Freidman thought this was a reasonably serious distortion on markets and that investors should have to pay tax on re-invested profits at the same rate as dividends, to correct for it.
Perhaps some aspect of tax systems in some countries is having a similar effect, that taking some money out of my lawnmower company to invest in a chip foundry would incur more taxes than expanding the company to do both lawnmowers and computer chips.
These days companies frequently buy back shares because they can do that without having to pay taxes for that.