Working Paper: CEPR ID: DP17029
Authors: Caroline Fohlin; Amanda Gregg
Abstract: Russia and Germany both industrialized later than England and the United States, and both countries retained authoritarian autocracies until World War I. But the two countries diverged in their regulation of industrial corporations during the mid-19th century, with Russia retaining strict controls via its concession system and Germany instituting nearly free incorporation. Based on a large collection of firm-level balance sheets, this paper presents new evidence revealing the likely impact of these systematic disparities on emerging industry’s access to capital. Contrary to the standard “economic backwardness” and “law and finance” literatures, we argue that authoritarian control of corporate entry significantly impeded the emergence of finance capitalism in Russia compared to the liberalized corporate financial system in Germany.
Keywords: law and finance; financial markets; capital structure; industrialization
JEL Codes: N13; N23; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| authoritarian control of corporate entry in Russia (L43) | emergence of finance capitalism (P34) |
| regulatory environment in Russia (L43) | access to capital (O16) |
| access to capital (O16) | industrial development (O25) |
| liberalization of incorporation laws in Germany (K22) | market for equity capital (G24) |
| restrictive regulations in Russia (L43) | reliance on debt (F34) |
| structural differences in corporate governance (G38) | economic growth trajectories (O49) |