Private Contracting, Law and Finance

Abstract

In the late nineteenth century Britain had almost no mandatory shareholder protections, but had very developed financial markets. We argue that private contracting between shareholders and corporations meant that the absence of statutory protections was immaterial. Using circa 500 articles of association from before 1900, we code the protections offered to shareholders in these private contracts. We find that firms voluntarily offered shareholders many of the protections which were subsequently included in statutory corporate law. We also find that companies offering better protection to shareholders had less concentrated ownership.

From Complementary to Competitive: The London and U.K. Provincial Stock Markets

“…From 1862 to 1899, there were few legal restrictions imposed on companies in terms of shareholder protections, but the exchanges could impose their own requirements. To examine this further, we have obtained data from Acheson, Campbell, and Turner (2019), who record in detail which shareholder protection provisions were included by companies in their 17 This was despite the perception reported in a survey in 1930 that provincial brokers now did more business among themselves rather than with London (Michie 2001, p. 218).…”

“…From the sample provided by Acheson, Campbell, and Turner (2019), we have data on 189 companies listed only on London, 131 companies only on the provincial markets, and 26 listed on both. In Table 8, we show the average number of provisions included in their articles of associations (SPITotal) by each of these types of companies.…”

“…Of these, the provincial companies had slightly fewer, although notably, the LSE firms also had less than the maximum, confirming that these requirements were not imposed until later. Notes: "SPI Total" refers to all 18 governance provisions examined by Acheson, Campbell, and Turner (2019). These included whether accounts were audited, accounts were mailed before the Annual General Meeting (AGM), access to company books, the auditor was a shareholder, 10 percent or less of capital was needed for an EGM, proxy voting, five or less shareholders required to force poll, graduated voting scheme, upper limit on votes, more than one AGM, preemptive rights on new share issues, limits on directors' borrowing powers, director cannot vote if any conflict of interest, director cannot profit directly from contracts, ban on repurchases, no approval of transfer, transfer books not closed, capital loss triggers AGM to liquidate, and "Default 1862" refers to the subset of 11 provisions that were recommended by the government in Table A of the 1862 Companies Act.…”

“…Further details of these variables are given in Appendix Table 1. Source: Data from Acheson, Campbell, and Turner (2019).…”

“…Acheson et al (2019) report that their sample was broadly similar to the wider capital market across a range of measures, but there were some differences. It did not include railways and included slightly more finance and industrial/commercial firms.…”