SIC 6719 Offices of Holding Companies, Not Elsewhere Classified

SIC 6719

Offices of holding companies, not elsewhere classified, include firms that primarily hold or own securities of other companies to exercise control over the activities of those organizations. This industry classification excludes bank holding companies, but includes investment, personal, and public utility holding companies. Corporations that operate the entities whose securities they hold are classified in their respective industry.

NAICS CODE(S)

551112

Offices of Other Holding Companies

Holding companies have several functions. They may be used to achieve financing goals or to circumvent certain federal or state regulations. Most often, however, a holding company allows a corporation to achieve economies of scale as well as geographic or market diversification. The holding company also allows a corporation to integrate both horizontally and vertically through its subsidiaries. For instance, an automaker may vertically integrate by buying a steel mill that can make steel for its cars without a mark-up in price. The same automaker might also integrate horizontally by acquiring or merging with another automaker, thereby providing new manufacturing technologies, a broader market, or complimentary product lines.

The first U.S. holding companies were formed in New Jersey, after that state passed the New Jersey Holding Company Act that allowed corporations to bring previously independent firms under unified control. Holding companies were an alternative to trust organizations, which often allowed monopolies to form. Although the goal of the Public Utility Holding Company Act of 1935 was also passed to prevent such monopolies in the electric power industry, electric companies serving a group of states or a single state continued to operate in such a manner.

The New Jersey Act generated so much tax revenue that other states soon followed its lead. The rise of holding companies allowed many corporations to reach national markets. Intense U.S. merger activity occurred periodically, from 1898 to 1902, during the 1920s, from 1951 to 1955, in the 1960s, and during the mid 1980s.

Mergers and acquisitions fell during the late 1980s and early 1990s, as heavy debt, the recession of the late 1980s, and a lack of capital slowed holding company growth. Furthermore, many industries dominated by large holding companies had lackluster revenues in the early 1990s.

By the end of the 1990s, however, mergers and...

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