Working Paper: NBER ID: w14412
Authors: Eric Hilt; Katharine E. O'Banion
Abstract: In 1822, New York became the first common-law state to authorize the formation of limited partnerships, and over the ensuing decades, many other states followed. Most prior research has suggested that these statutes were utilized only rarely, but little is known about their effects. Using newly collected data, this paper analyzes the use of the limited partnership in nineteenth-century New York City. We find that the limited partnership form was adopted by a surprising number of firms, and that limited partnerships had more capital, failed at lower rates, and were less likely to be formed on the basis of kinship ties, compared to ordinary partnerships. The latter differences were not simply due to selection: even though the merchants who invested in limited partnerships were a wealthy and successful elite, their own ordinary partnerships were quite different from their limited partnerships. The results suggest that the limited partnership facilitated investments outside kinship networks, and into the hands of talented young merchants.
Keywords: limited partnerships; kinship ties; New York City; economic history; business law
JEL Codes: K2; N81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Limited Partnerships (H44) | More Capital (E22) |
| Limited Partnerships (H44) | Lower Failure Rates (L15) |
| Limited Partnerships (H44) | Less Kinship Ties (J12) |
| Less Kinship Ties (J12) | Enhanced Firm Performance (L25) |