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When did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century

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  • Eric Hilt

Abstract

This paper analyzes the ownership and governance of the business corporations of New York State in the 1820s. Using a new dataset collected from the manuscript records of New York's 1823 capital tax, and from the charters of the corporations, I analyze the ownership structures of the firms, and investigate the degree to which ownership was separated from control at the time. In contrast to Berle and Means's account of the development of the corporation, the results indicate that many of the firms were dominated by large shareholders, who were represented on the firms' boards, and held sweeping power to utilize the firms' resources for their own benefit. The oppression of minority shareholders was a significant problem in early corporate governance, and many of the firms configured their voting rights in a way that curtailed the power of large investors. A positive relationship between firm value and these voting rights configurations is found among the publicly-traded firms in the sample.

Suggested Citation

  • Eric Hilt, 2007. "When did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century," NBER Working Papers 13093, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13093
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    Cited by:

    1. Calomiris, Charles W. & Carlson, Mark, 2016. "Corporate governance and risk management at unprotected banks: National banks in the 1890s," Journal of Financial Economics, Elsevier, vol. 119(3), pages 512-532.
    2. Eric Hilt, 2014. "History of American Corporate Governance: Law, Institutions, and Politics," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 1-21, December.
    3. Calomiris, Charles W. & Carlson, Mark A., 2014. "National Bank Examinations and Operations in the Early 1890s," Finance and Economics Discussion Series 2014-19, Board of Governors of the Federal Reserve System (U.S.).
    4. Eric Hilt, 2009. "Wall Street's First Corporate Governance Crisis: The Panic of 1826," NBER Working Papers 14892, National Bureau of Economic Research, Inc.
    5. Howard Bodenhorn, 2015. "Double Liability at Early American Banks," NBER Working Papers 21494, National Bureau of Economic Research, Inc.
    6. Howard Bodenhorn, 2013. "Large Block Shareholders, Institutional Investors, Boards of Directors and Bank Value in the Nineteenth Century," NBER Working Papers 18955, National Bureau of Economic Research, Inc.
    7. Eric Hilt, 2014. "Corporate Governance and the Development of Manufacturing Enterprises in Nineteenth-Century Massachusetts," NBER Chapters,in: Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective, pages 73-102 National Bureau of Economic Research, Inc.
    8. Howard Bodenhorn, 2012. "Voting Rights, Share Concentration, and Leverage at Nineteenth-Century US Banks," NBER Working Papers 17808, National Bureau of Economic Research, Inc.
    9. Acheson, Graeme G. & Campbell, Gareth & Turner, John D., 2016. "Common law and the origin of shareholder protection," eabh Papers 16-03, The European Association for Banking and Financial History (EABH).
    10. Robert E. Wright, 2010. "Rise of the Corporation Nation," NBER Chapters,in: Founding Choices: American Economic Policy in the 1790s, pages 217-258 National Bureau of Economic Research, Inc.
    11. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    12. Jeremy Atack & Michael R. Haines & Robert A. Margo, 2008. "Railroads and the Rise of the Factory: Evidence for the United States, 1850-70," NBER Working Papers 14410, National Bureau of Economic Research, Inc.
    13. Howard Bodenhorn & Eugene N. White, 2014. "The Evolution of Bank Boards of Directors in New York, 1840–1950," NBER Chapters,in: Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective, pages 107-145 National Bureau of Economic Research, Inc.
    14. Foreman-Peck, James & Hannah, Leslie, 2011. "Extreme Divorce: the Managerial Revolution in UK Companies before 1914," Cardiff Economics Working Papers E2011/21, Cardiff University, Cardiff Business School, Economics Section.
    15. Dan Bogart & John Majewski, 2008. "Two Roads to the Transportation Revolution: Early Corporations in the United Kingdom and the United States," NBER Chapters,in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 177-204 National Bureau of Economic Research, Inc.
    16. David Le Bris & William N. Goetzmann & Sébastien Pouget, 2015. "The Development of Corporate Governance in Toulouse: 1372-1946," NBER Working Papers 21335, National Bureau of Economic Research, Inc.
    17. Burkart, Mike & Miglietta, Salvatore & Ostergaard, Charlotte, 2017. "Why Do Boards Exist? Governance Design in the Absence of Corporate Law," CEPR Discussion Papers 12147, C.E.P.R. Discussion Papers.
    18. Aldo Musacchio, 2010. "Law and Finance c. 1900," NBER Working Papers 16216, National Bureau of Economic Research, Inc.
    19. Hilt, Eric & Valentine, Jacqueline, 2012. "Democratic Dividends: Stockholding, Wealth, and Politics in New York, 1791–1826," The Journal of Economic History, Cambridge University Press, vol. 72(02), pages 332-363, June.
    20. Benoît D'Udekem, 2014. "Rational Dividend Addiction in Banking," Working Papers CEB 14-013, ULB -- Universite Libre de Bruxelles.
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    22. Jessica Hennessey, 2014. "Loss of control: legislature changes and the state–local relationship," Constitutional Political Economy, Springer, vol. 25(4), pages 407-433, December.
    23. Howard Bodenhorn, 2014. "Voting Rights, Shareholdings, and Leverage at Nineteenth-Century U.S. Banks," Journal of Law and Economics, University of Chicago Press, vol. 57(2), pages 431-458.

    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N81 - Economic History - - Micro-Business History - - - U.S.; Canada: Pre-1913

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