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The"Corporation:""Evolution"or"Equilibrium?"
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First"Draft:"April"25,"2013"
Preliminary:+Please+do+not+quote+Without+Permission+
+
David"Le"Bris"(KEDGEGBEM"Bordeaux"School"of"Management)"
William"N."Goetzmann"(Yale"School"of"Management)"
Sébastien"Pouget"(Toulouse"University"School"of"Economics)"
"
Abstract:" " The" corporation" appeared" independently" at" different" times" and" different"
places"in"response"to"the"need"to"finance"different"kinds"of"enterprises."""This"suggests"
that" it" may" be" an" equilibrium" solution" to" a" set" of" very" general" economic" problems.""
While" scholarship" has" long" emphasized" the" evolutionary" development" of" the"
corporation" as" an" accretion" of" defining" characteristics" that" brought" it" closer" to" the"
modern"form,"the"variety"of"initial"conditions"that"ultimately"can"result"in"a"corporateG
like"solution"are"useful"in"revealing"sufficient"conditions.""In"this"paper"we"document"the"
emergence"of"corporations"that"preceded"the"Dutch"and"British"East"Indies"Companies"
by" more" than" a" century:" The" mill" companies" of" Toulouse" that" appeared" in" the" 14th"
century"had"juridical"personalities,"permanent"capital,"tradable"equity"shares"that"paid"
variable" dividends" and" separation" of" ownership" and" control" long" before" the"
development" of" this" constellation" of" institutional" characteristics" in" the" Netherlands" or"
England." Together" with" the" Bank" of" SaintGGeorge" which" was" founded" in" Genoa" in" the"
early" 15th" century," the" Toulouse" mill" companies" suggest" a" more" southern" locus" for" an"
alternative"development"of"the"corporate"form."
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Introduction"
The"early"European"trading"companies"serve"as"rich"laboratories"for"the"study"of"the"development"of"the"
corporation."""There"were"many"of"them,"they"developed"in"different"countries,"and"they"played"a"major"
role"in"the"emergence"of"the"modern"global"economy.""While"their"lineage"is"traditionally"traced"to"the"
medieval"commenda"contracts"of"Italy,"the"English"and"Dutch"East"India"companies"are"viewed"as"
watershed"innovations"in"the"development"of"commercial"enterprise.""There"is"little"doubt"that"the"early"
trading"companies"were"predecessors"of"the"modern"corporation,"however"there"is"also"evidence"of"the"
development"of"the"corporate"form"in"settings"other"than"overseas"trade.""Malmendier"(2006),"for"
example,"shows"that"public"corporations"emerged"in"republican"Rome"as"a"means"to"privatize"certain"
functions"of"the"state.1"""Another"example"is"Genoa’s""Bank"of"Saint"George,"founded"in"1407"to"manage"
the"finances"of"the"republic."
This"paper"focuses"on"another"such"early"corporation,"a"mill"company"in"Toulouse"on"the"banks"of"the"
Garonne"river"that"was"formally"incorporated"in"1372"via"a"merger"of"smaller"mill"companies"that"had"
existed"since"the"12th"century.""The"Honor"del"Bazacle"is"the"earliest"documented"corporation"in"the"
current"era.""It"had"essentially"all"the"characteristics"that"define"the"modern"corporation:"a"juridical"
personality,"limited"liability,"share"transferability,"entity"shielding,"separation"of"ownership"and"control,"
governance"by"a"board"of"directors,"annual"shareholder"meetings"and"transparency"of"accounts."It"paid"
variable"dividends"declared"annually"and"its"share"prices"are"recorded"from"1372"up"to"its"
nationalization"in"1946.2"""It"played"an"important"role"in"the"economic"life"of"a"major"city"in"France"for"
more"than"600"years,"and"yet"it"has"been"largely"overlooked"as"a"predecessor"to"the"modern"
corporation.""The"appearance"of"the"Honor"del"Bazacle"in"the"context"of"a"strikingly"different"industrial"
setting"from"early"modern"trading"companies"–"at"a"date"much"earlier"than"is"normally"recognized"for"
the"emergence"of"the"first"corporation"in"the"current"era"–"raises"some"interesting"questions"about"the"
origins"of"the"corporation.3"
DariGMattiacci"et"al."(2013)"show"that"the"corporate"form"developed"organically"in"the"Dutch"Republic"
over"the"late"16th"and"early"17th"centuries"as"a"response"to"necessities"of"organizing"and"capitalizing"the"
Dutch"East"Indies"Company.""They"demonstrate"how"the"nature"of"the"enterprise"required"that"investor"
capital"withdrawal"be"executed"by"a"secondary"share"market"as"opposed"to"partnership"dissolution.""
They"show"that"the"high"fixed"coordination"and"capital"costs"motivated"the"transition"of"the"firm"from"a"
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1
"Malmendier,"Ulrike.""Roman"Shares”,"In"Goetzmann","W."and"K."Rouwenhorst,""eds."The+Origins+of+Value,"(Oxford,"
2005):"31G42."
2
"Cf."Germain"Sicard"(1952),"Le"Bris,"D.,"Goetzmann,"W."N."Pouget,"(2013),"“Modern"Introduction"to"Germain"
Sicard’s""The"Mills"of"Toulouse”.""Yale"Press,"forthcoming,"Goetzmann,"W."N.,"Pouget,"S."(2011),"“A"shareholder"
lawsuit"in"fourteenth"century"Toulouse","in"Origins"of"Shareholder"Advocacy,"Edited"by"Jonathan"G.S."Koppell,"
PalgraveGMacMillan,"and"Le"Bris,"D.,"Goetzmann,"W."N."Pouget,"(2013),"“600"Years"of"Stock"Returns,"The"Bazacle"
Company"of"Toulouse"from"1372"to"1946”,"working"paper,"Toulouse"School"of"economics."
3
"DariGMattiacci,"Giuseppe,"Gelderblom,"Oscar,"Jonker,"Joost"and"Perotti,"Enrico"C.,"The"Emergence"of"the"
Corporate"Form"(February"25,"2013)."Amsterdam"Center"for"Law"&"Economics"Working"Paper"No."2013G02;"
Amsterdam"Law"School"Research"Paper"No."2013G11."
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fixedGterm"enterprise"to"a"perpetual"one,"and"finally"how"financing"exigencies"led"to"limited"liability.""The"
result"was"an"“efficiency–enhancing"institutional"innovation”."In"short,"they"show"convincingly"that"the"
process"of"overcoming"a"series"of"problems"confronting"largeGscale"capitalization"of"enterprise"led"to"the"
achievement"of"a"higher"institutional"equilibrium"that,"once"perfected,"allowed"for"superior"capital"
allocation"and"adaption"to"other"businesses."
The"Honor"del"Bazacle"achieved"substantially"all"the"same"corporate"milestones"of"the"VOC"but"the"
developmental"means"by"which"it"reached"the"higher"“corporate"equilibrium”"were"quite"different."Not"
only"was"the"nature"of"the"enterprise"different,"but"the"political"and"legal"institutional"structures"
differed."""The"company"and"its"two"rival"firms"in"Toulouse"achieved"all"the"features"of"the"corporation"
through"private"contracting;"drawing"upon"a"feudal"legal"framework"as"opposed"to"a"legislative"or"
monarchical"one.""Entity"shielding"appears"to"have"been"achieved"through"the"use"of"the"feudal"
institution"of"pariage"rather"than"legislated"constraints"on"creditor"rights.""Board"governance"and"
shareholder"rights"were"borrowed"from"Toulousan"political"traditions."
We"show"in"this"paper"that"the"corporate"form"can"arise"in"a"wider"variety"of"circumstances"than"
previously"imagined,"and"that,"even"under"the"circumstances"of"independent"development,"the"basic"
outline"and"features"of"the"corporation"are"recognizable"–"and"hence"fundamental"–"to"the"nature"of"the"
institutional"equilibrium."""The"early"appearance"of"the"Bazacle"Company"and"the"Bank"of"Saint"George"in"
the"western"Mediterranean"roughly"a"century"before"the"development"of"corporations"in"northern"
Europe"also"introduces"the"question"of"whether"the"discovery"of"the"corporate"form"was"due"to"a"
specific"political"and"legal"framework"–"perhaps"entirely"unrelated"to"commenda"and"merchant"
contracts"–"that"helped"reach"the"higher"corporate"equilibrium."
Our"assertion"of"the"independent"discoveries"of"the"corporate"form"in"the"northern"Europe"and"the"
western"Mediterranean"also"requires"an"examination"of"whether"the"idea"of"the"company"simply"
diffused"from"one"place"to"the"other."The"careful"reconstruction"of"the"chain"of"events"by"DariGMattiacci"
et"al."(2013)"would"suggest"not.""Germain"Sicard"(1952)"also"explored"this"question"and"likewise"reached"
a"negative"conclusion."On"the"other"hand,"while"there"is"little"evidence"that"the"Bazacle"company"served"
as"an"explicit"paradigm"for"later"French"corporations"(despite"its"long"survival),"the"Bank"of"Saint"George"
actively"participated"in"maritime"trade"in"the"Great"Age"of"Discovery"and"is"a"plausible"vector"for"the"
model"of"the"permanently"capitalized,"publicly"held"corporation"as"it"developed"in"the"Netherlands."
Genoese"financiers"were"early"investors"in"Atlantic"voyages"of"discovery"and"organized"their"own"
colonial"expansion"in"the"Mediterranean"through"share"partnerships"called"ma’ona.""Columbus,"in"
planning"his"estate"in"the"early"16th"century"recommended"shares"in"the"Bank"of"Saint"George"as"a"solid"
investment.""These"connections"thus"suggest"the"possibility"of"an"alternative"origin"of"the"modern"
corporation,"perhaps"thanks"to"institutions"specific"to"late"medieval"republics"in"the"western"
Mediterranean.""The"Bank"of"Saint"George"survived"into"the"19th"century"and"was"a"famous"financial"
institution"at"the"time"of"the"founding"of"the"VOC.""If"a"model"of"a"corporate"enterprise"with"permanent"
capital,"tradable"shares,"juridical"entity"and"separation"of"ownership"and"control"already"existed,"and"
was"acting"as"a"financier"of"world"trade,"why"then"was"it"not"used"by"the"directors"of"the"VOC"as"a"
model?"
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