Proposal preview

Enterprise Forms in Late-Industrializing Countries

A firm’s legal form of organization determines who controls the firm, who owns the firm’s revenue, and how the firm may finance operations and expansion. The forms of enterprise available to firms and how the law operates in practice therefore have important consequences for the overall economy. While an active literature on historical enterprise forms has developed to document these mechanisms, nearly all of this work has focused on the experience of Western Europe and the United States (See, for example, Guinnane et al 2007). This session corrects this empirical imbalance by bringing together scholars whose works explore the evolution of business organization in a diverse setting of late-industrializing economies such as Spain, Russia, Italy, and Egypt. The panel will focus on the interaction between the legal structure of the firm and the broader institutional complex in which firms operate. We will explore adoption of corporate governance rules in different legal rules under different regimes (Colonial Egypt and Imperial Russia), how enforcement of property rights and informational frictions affected the popularity of limited partnerships in early-modern Italy, and how courts interpreted codes regulating enterprise forms in Spain.

Organizer(s)

  • Amanda Gregg Middlebury College agregg@middlebury.edu United States
  • Cihan Artunc University of Arizona cartunc@email.arizona.edu United States

Session members

  • Amanda Gregg, Middlebury College
  • Susana Martinez Rodriguez, University of Murcia
  • Cihan Artunc, University of Arizona
  • Francesca Trivellato, Yale University

Discussant(s)

Papers

Panel abstract

A firm’s legal form of organization determines who controls the firm, who owns the firm’s revenue, and how the firm may finance operations and expansion. The forms of enterprise available to firms and how the law operates in practice therefore have important consequences for the overall economy. While an active literature on historical enterprise forms has developed to document these mechanisms, nearly all of this work has focused on the experience of Western Europe and the United States (See, for example, Guinnane et al 2007). This session corrects this empirical imbalance by bringing together scholars whose works explore the evolution of business organization in a diverse setting of late-industrializing economies such as Spain, Russia, Italy, and Egypt. The panel will focus on the interaction between the legal structure of the firm and the broader institutional complex in which firms operate.

1st half

'Remedies Precede Rights’: Evidence from the Spanish Courts on the SRL (1919-1953)

Timothy Guinnane (Yale University) and Susana Martinez Rodriguez (University of Murcia)

In the first third of the 20th century, several countries introduced a new type of limited-liability enterprise. Spain was one of them, creating the SRL (Sociedad de Responsabilidad Limitada). The SRL did not have a statutory basis until 1953, but from its initial legalization (1920), the form has been very popular. Some scholars have claimed that the SRL was “insecure” from the legal point of view because in case of conflict, a court could refuse to accept the owners’ limited liability. Could that happen? This paper is the first attempt at describing how the Supreme Court (SC) dealt with the SRL. A new (qualitative) database on SRL decisions is used to analyze the creation of precedent in which the SC: (1) in most cases, did not pronounce itself on the characteristics of the SRL; (2) in a few cases, treated the SRL as a type of partnership with limited liability.

In the first third of the 20th century, several countries introduced a new type of limited-liability enterprise. Spain was one of them, creating the SRL (Sociedad de Responsabilidad Limitada). The SRL did not have a statutory basis until 1953, but from its initial legalization (1920), the form has been very popular. Some scholars have claimed that the SRL was “insecure” from the legal point of view because in case of conflict, a court could refuse to accept the owners’ limited liability. Could that happen? This paper is the first attempt at describing how the Supreme Court (SC) dealt with the SRL. A new (qualitative) database on SRL decisions is used to analyze the creation of precedent in which the SC: (1) in most cases, did not pronounce itself on the characteristics of the SRL; (2) in a few cases, treated the SRL as a type of partnership with limited liability.

Legal Origins of Corporate Governance: Choice of Law in Egypt, 1887-1913

Cihan Artunc (University of Arizona)

The corporate governance literature view that corporations should promote their shareholders’ interests and that Anglo-American legal rules are more successful in this than rules derived from European civil law. However, corporate governance cannot be easily disentangled from other sources that can influence firm outcomes. Furthermore, few studies explore the details of rules corporations put in their articles of association. This paper takes a first step in disentangling these effects by assembling a new dataset of corporations in Egypt between 1887 and 1913. Egypt had an unusual system of incorporation. The main legal system was derived from France but European entrepreneurs had the option of incorporating their firm under their country’s legal regime. This legal flexibility resulted in a great deal of variation in governance structures, subscribers’ nationality, and financing. The results suggest that companies incorporated under British law were less shareholder friendly than those under laws derived from France.

The corporate governance literature view that corporations should promote their shareholders’ interests and that Anglo-American legal rules are more successful in this than rules derived from European civil law. However, corporate governance cannot be easily disentangled from other sources that can influence firm outcomes. Furthermore, few studies explore the details of rules corporations put in their articles of association. This paper takes a first step in disentangling these effects by assembling a new dataset of corporations in Egypt between 1887 and 1913. Egypt had an unusual system of incorporation. The main legal system was derived from France but European entrepreneurs had the option of incorporating their firm under their country’s legal regime. This legal flexibility resulted in a great deal of variation in governance structures, subscribers’ nationality, and financing. The results suggest that companies incorporated under British law were less shareholder friendly than those under laws derived from France.

The Births, Lives, and Deaths of Imperial Russian Corporations

Amanda Gregg (Middlebury College) and Steven Nafziger (Williams College)

Understanding the birth, growth, and death of firms in the early stages of industrial development is a relatively unexplored area of economic history, yet these processes are at the heart of transitions to modern economic growth. Our paper investigates the competitiveness and financial development of the Imperial Russian economy by examining patterns of entry, exit, and persistence in the corporate sector. This analysis relies on a newly developed panel database of detailed annual balance sheet information from every active corporation in the Russian Empire between 1899 and 1914. We document how new and newly transformed corporations evolved over their life cycles, and we construct proportional hazard models to predict firm exits based on underlying balance sheet and governance characteristics. Our findings suggest high levels of flexibility and competitiveness in the Imperial corporate sector, which belies simplistic arguments regarding institutional constraints on firm growth and development in Imperial Russian industry.

Understanding the birth, growth, and death of firms in the early stages of industrial development is a relatively unexplored area of economic history, yet these processes are at the heart of transitions to modern economic growth. Our paper investigates the competitiveness and financial development of the Imperial Russian economy by examining patterns of entry, exit, and persistence in the corporate sector. This analysis relies on a newly developed panel database of detailed annual balance sheet information from every active corporation in the Russian Empire between 1899 and 1914. We document how new and newly transformed corporations evolved over their life cycles, and we construct proportional hazard models to predict firm exits based on underlying balance sheet and governance characteristics. Our findings suggest high levels of flexibility and competitiveness in the Imperial corporate sector, which belies simplistic arguments regarding institutional constraints on firm growth and development in Imperial Russian industry.

Are Secure Property Rights a Sufficient Condition? Limited Partnerships in Tuscany, c. 1450-1800

Francesca Trivellato (Yale University)

The NIEH holds that secure property rights are a necessary condition for the rise of impersonal markets. But are they a sufficient condition? Limited liability is an apt test-case. A clause that helped entrepreneurs to raise capital and savers to shield their investments from unwanted risks, it is often described as a key development in European business organization. However, we know very little about who used limited partnerships (LPs) in pre-industrial Europe and for what purposes. The study of roughly 4,500 LPs registered in Florence from 1445 to 1808 shows that LPs were neither the preferred way of organizing private business nor significantly different from general partnerships. These preliminary results demonstrate that property rights were well protected in Southern Europe but that, alone, they did not create more impersonal markets. We need to study property rights in their broader historical context.

The NIEH holds that secure property rights are a necessary condition for the rise of impersonal markets. But are they a sufficient condition? Limited liability is an apt test-case. A clause that helped entrepreneurs to raise capital and savers to shield their investments from unwanted risks, it is often described as a key development in European business organization. However, we know very little about who used limited partnerships (LPs) in pre-industrial Europe and for what purposes. The study of roughly 4,500 LPs registered in Florence from 1445 to 1808 shows that LPs were neither the preferred way of organizing private business nor significantly different from general partnerships. These preliminary results demonstrate that property rights were well protected in Southern Europe but that, alone, they did not create more impersonal markets. We need to study property rights in their broader historical context.

2nd half

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