Related Investing: Corporate Ownership and Capital Mobilization during Early Industrialization
Scholars engage in extensive debate about the role of families and corporations in economic growth. Some propose that personal ties provide a mechanism for overcoming such transactions costs as asymmetrical information, while others regard familial connections as conduits for inefficiency, with the potential for nepotism, corruption and exploitation of other stakeholders. This empirical study is based on a unique panel dataset comprising all of the shareholders in a sample of early corporations, including information on such characteristics as gender, age, occupation, household composition, real estate holdings and personal wealth. Related investing was widespread among directors and elite shareholders, but was also pervasive among women and small shareholders. Personal ties were especially evident among ordinary investors in the newer, riskier ventures, and helped to ensure persistence in shareholding. “Outsider investors” were able to overcome a lack of experience and information by taking advantage of their own networks. The link between related investing and the concentration of ownership in these corporations suggests that this phenomenon was likely associated with a reduction in perceptions of risk, especially beneficial for capital mobilization in emerging ventures. These patterns are consistent with a more productive interpretation of related investing and its function in newly developing societies.
I am grateful for comments and discussions with Howard Bodenhorn, Alan de Bromhead, Stanley Engerman, Michael Haines, Leslie Hannah, Eric Hilt, Noel Johnson, Naomi Lamoreaux, Gary Libecap, Aldo Musacchio, Tom Nicholas, Mary O’Sullivan, Susie Pak, Robin Pearson, Jean Rochat, Christy Romer, Richard Sutch, John Turner, Noam Yuchtman, and participants in seminars at Queen’s University Belfast, George Mason University, the University of California at Berkeley, the NBER, the University of Geneva, the University of Toulouse, the London School of Economics, Warwick University, the Business History Conference, and the World Economic History Conference. This project would not have been possible without the excellent research assistance of Joseph Amdur, Charles Boyle, Nicholas Cast, Cameron Chisholm, Andrew Haeger, and Nathan Joseph. Richard Sylla and Robert Wright generously shared their data and offered valuable suggestions. Ginny Hopcroft, Carr Ross and Guy Saldanha, and employees at the Maine Archives were very helpful. Thanks are also due to Bowdoin College for offering support for the project. Liability for errors is limited to the author. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.