businesses into one entity. In some cases, firms can
exacerbateproblemsbycreatingsubsidiariesforeachoftheir
businesses and holding less than 100 percent of these
subsidiaries.In theUnitedStates, forinstance, a firm that
owns 51 percentofasubsidiarywillhavetoconsolidateits
statements and show minority interests as a liability.
11 Afirmthatowns only 15 percent ofa subsidiary may
showonly itssharesofthedividendsinthesubsidiaryand
reflectnoneoftheassetsandliabilitiesofthesubsidiaryonits
balance sheet.
Agoodexampleofcomplexitycreatedbystructuringwould
be Coca-Cola’s split-up of its bottlers in the 1980s. By
making thesebottlersindependent entitiesand reducingits
ownership in the bottlers below the majority threshold,
Coca-Cola wasable to take its lowest-return assetsoff its
booksand reportsignificantly higherreturns oncapital. In
reality, however, the partial ownership of the bottlers
obscures the true returns and financial leverage of the
consolidatedfirm.Afterall,Coca-Colaanditsbottlersarea
composite entity, with thevalue of one deriving from the
existence of the other.
TheproblemswithcrossholdingsaremostvisibleatAsian
companies, especially the older conglomerates. The
complicatedcrossholdingsatthesefirmsreflectnotjustthe
longhistoryofthesefirmsasprivatebusinesses(wherethe
intent wastoreportaslittle inearningsas profits)but the
current desire on the part of the incumbent managers to
controlthesefirmswithminimalholdings.Insomecases,the
crossholdingsareinotherprivatebusinesses,withlittleorno
informationprovidedonthesebusinesses.Businessstructures
that are created to enhance control also contribute to