The Economic History of Organizational Entities in Ancient India

58 Pages Posted: 14 Feb 2006

See all articles by Vikramaditya S. Khanna

Vikramaditya S. Khanna

University of Michigan Law School; European Corporate Governance Institute (ECGI)

Date Written: November 15, 2005

Abstract

The corporation is the most popular form of business organization. Moreover, as the economies of emerging markets leap forward the popularity of the corporate form, and other kinds of business organizations, continues to grow. In light of their widespread appeal, one is naturally inclined to inquire more about business organizations and how they developed over time. Many questions can be pondered including: where did business organizations, such as the corporation, originate; how old are they; have they taken the same form everywhere or have there been local variations; and what are the pre-conditions for their development. All these questions are important not only for their own intrinsic value, but also because of the insights they provide about the development of the corporate sector in emerging markets and about the prospects for convergence, of one kind or another, in corporate governance. Indeed, a series of important papers by Henry Hansmann & Reinier Kraakman and other authors examine these questions both in Rome and in Medieval Europe. The aim of this paper is to explore a number of these questions by examining the economic history and development of organizational entities in Ancient India. The paper finds considerable evidence that urges us toward a significant revision of the history and development of business organizations and corporations.

The examination reveals that business people on the Indian subcontinent utilized a variety of organizational entities from a very early period. The sreni - a complex organizational entity that shares similarities with corporations, guilds, and producers' cooperatives - was being used in India from around 800 B.C. and was in more or less continuous use since then until the advent of the Islamic invasions around 1000 A.D. This provides evidence for the use of complex organizational entities centuries before the earliest Roman proto-corporations. In fact, the use of such entities in Ancient India was widespread including virtually every kind of business, political and municipal activity. Moreover, when we examine how these entities were structured, governed and regulated we find that they bear many similarities to corporations, guilds and other kinds of business organizations. The familiar concerns of agency costs and incentive effects are both present and addressed in quite similar ways as are many other aspects of the law regulating business entities. Further, examining the historical development of the sreni indicates that the factors leading to its growth are consistent with those put forward for the growth of organizational entities in Europe. These factors include increasing trade, methods to contain agency costs, and methods to patrol the boundaries between the assets of the sreni and those of its members (i.e., to facilitate asset partitioning or entity shielding and reduce creditor information costs). Finally, examining the development of the sreni in Ancient India sheds light on the importance of state structure for the growth of trade and business organizations as well as on prospects for some kind of convergence in corporate governance.

JEL Classification: B10, B15, L51, Z10

Suggested Citation

Khanna, Vikramaditya S., The Economic History of Organizational Entities in Ancient India (November 15, 2005). Michigan Law and Economics Research Paper No. 05-014, Available at SSRN: https://ssrn.com/abstract=883670 or http://dx.doi.org/10.2139/ssrn.883670

Vikramaditya S. Khanna (Contact Author)

University of Michigan Law School ( email )

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United States
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European Corporate Governance Institute (ECGI) ( email )

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Belgium

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