A Theory of Path Dependence in Corporate Ownership and Governance

41 Pages Posted: 3 Jan 2000 Last revised: 26 Apr 2009

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Mark J. Roe

Harvard Law School

Date Written: October 1, 1999

Abstract

Corporate structures differ among the advanced economies of the world. We contribute to an understanding of these differences by developing a theory of the path dependence of corporate structure. The corporate structures that an economy has at any point in time depend in part on those that it had at earlier times. Two sources of path dependence--structure driven and rule driven--are identified and analyzed. First, the corporate structures of an economy depend on the structures with which the economy started. Initial ownership structures have such an effect because they affect the identity of the structure that would be efficient for any given company and because they can give some parties both incentives and power to impede changes in them. Second, corporate rules, which affect ownership structures, will themselves depend on the corporate structures with which the economy started. Initial ownership structures can affect both the identity of the rules that would be efficient and the interest group politics that can determine which rules would actually be chosen. Our theory of path dependence sheds light on why the advanced economies, despite pressures to converge, vary in their ownership structures. It also provides a basis for why some important differences might persist.

JEL Classification: G3, K22

Suggested Citation

Bebchuk, Lucian A. and Roe, Mark J., A Theory of Path Dependence in Corporate Ownership and Governance (October 1, 1999). Stanford Law Review, Vol. 52, pp. 127-170, 1999, Columbia Law School, Center for Studies in Law & Economics Paper No. 131, November 1999, Available at SSRN: https://ssrn.com/abstract=202748 or http://dx.doi.org/10.2139/ssrn.202748

Lucian A. Bebchuk

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mark J. Roe (Contact Author)

Harvard Law School ( email )

Griswold 502
Cambridge, MA 02138
United States
617-495-8099 (Phone)
617-495-4299 (Fax)

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