NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Partnership Law and Credit Availability

Howard Bodenhorn

NBER Working Paper No. 16689
Issued in January 2011
NBER Program(s):   DAE

Legal and economic historians now emphasize the centrality of organizational law in determining the contractual boundaries of the firm. Nineteenth-century US law recognized a small set of firm types – proprietorship, partnership and corporation – and enforced the creditor rights and priorities associated with them. This paper investigates how those creditor rights and priorities influenced the availability of credit. Using a unique data set from the nineteenth century United States and borrower fixed effects, I find that partnerships paid more for credit than proprietorships. The interest rate disadvantage for partnerships was offset by their ability to finance larger and longer-horizon entrepreneurial ventures.

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