Working Paper: NBER ID: w21335
Authors: David Le Bris; William N. Goetzmann; Sébastien Pouget
Abstract: We document a sequence of institutional innovations associated with the corporate form over the course of several centuries in Toulouse. Shareholding companies that began in the 11th century formally incorporated themselves into two large-scale, widely held firms by 1373. In the years that followed they experienced the economic challenges and conflicts we now recognize as inherent in the separation of ownership and control. Using new and existing archival research, we show how the Toulouse firms developed institutional solutions including tradable shares, limited liability, governing boards, cash payout policies, external audits, shareholder meetings and mechanisms for re-capitalization. \n \nWe examine these developments in the context of institutional economic theory and the received history of the corporation. The Toulouse companies preceded the birth of the Dutch and English East India companies by centuries. The Toulouse firms shed light on the necessary and sufficient conditions for the development of the corporate form. We show that the constellation of features associated with the corporation can appear in situations of relative economic certainty and in the context of Medieval legal code that did not require the granting of governmental approval or patent. The Toulouse firms are a unique case in which the corporation appears as a nexus of private contracts.
Keywords: Corporate Governance; Toulouse; Institutional Innovations; Separation of Ownership and Control
JEL Codes: G30; G34; G35; N0; N2; N8; N83; O16; P1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Historical context of Toulouse firms (N93) | Development of governance structures (G38) |
| Emergence of shareholding companies in Toulouse by the 11th century (N93) | Development of institutional solutions to manage the separation of ownership and control (G34) |
| Institutional innovations (O35) | Economic challenges (F69) |
| Governance mechanisms developed by Toulouse firms (G38) | Long-term viability of the firms (D25) |