Legal Regime and Contractual Flexibility: A Comparison of Business's Organizational Choices in France and the United States during the Era of Industrialization

Abstract

In a recent series of articles, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny have argued that countries whose legal systems are based on civil law (especially of French origin) have systematically weaker environments for business than those whose legal systems are based on Anglo-American common law. This paper addresses that argument by exploring the responsiveness of French and U.S. law to the needs of business enterprises during the nineteenth century, when both countries were undergoing industrialization. We find that contracting environment in the U.S. was in fact neither freer nor more flexible than that in France during this critical period. Not only did U.S. law offer enterprises a more limited menu of organizational choices, but business people in the U.S. had much less ability to adapt the basic forms to meet their needs than their French counterparts. Nor is there any evidence that American law evolved more readily in response to economic change than French law. In both nations, major changes in the rules governing organizational forms required the passage of new statutes, and governmental institutions do not seem to have worked any more expeditiously in the U.S. than in France to improve the menu of choices. To the contrary, it was not until the late twentieth century that U.S. business obtained much the same degree of contractual freedom that their French counterparts had long taken for granted.

Do legal origins matter? The case of bankruptcy laws in Europe 1808-1914

“…38 Comparable conclusions are reached i.a. by Lamoreaux and Rosenthal (2005), and by Musacchio (2005). early century model is correct, then, apparently, transactions risks should have declined sharply in the latter part of the century.…”

Corporate Governance and the Plight of Minority Shareholders in the United States before the Great Depression

“…Because the overwhelming majority of businesses in the United States organized either as ordinary partnerships or as corporations, it is this choice that we model. See Lamoreaux and Rosenthal (2005). For an extended discussion of the inadequacies of joint-stock companies and other variants of partnerships relative to corporations in Britain in the late eighteenth and early nineteenth centuries, see Harris (2000).…”

“…For a more extensive discussion of the importance of these rules, see Lamoreaux and Rosenthal (2005) and Lamoreaux (2004), which show that the courts made it difficult for firms in the United States to adopt nonstandard governance rules. For a comparison of voting rules in U.S. corporations with those in corporations in other countries, see Dunlavy (2004).…”

Choice of Enterprise Form: Spain, 1886-1936

“…(Hansmann et al, 2006). Until the nineteenth century, most multi-owner firms in Continental Europe were partnerships, as corporations remained rare in comparison to the US (Lamoreaux and Rosenthal 2005;Guinnane et al 2007).…”