Choice of Enterprise Form: Spain, 1886-1936.

GUINNANE, T.; MARTÍNEZ-RODRÍGUEZ, S. (2018) “Choice of Enterprise Form: Spain, 1886-1936.” Journal of Law, Economics, and Organization, 34(1), 1-26.

Every new firm selects a legal form for the enterprise. Organizing as a corporation, a limited company, or a partnership shapes the firm’s access to capital markets, its governance arrangements and tax liabilities, and its treatment in bankruptcy. We use multinomial choice models to estimate the determinants of enterprise form using firm-level data on Spain for the period 1886-1936. Our results support hypotheses drawn from the corporate-finance and ownership literatures; entrepreneurs preferred the corporation for the largest firms and for firms vulnerable to hold-up. In 1919, Spain introduced a new legal form, a limited company combining attributes of the corporation and the partnership. This Sociedad de Responsabilidad Limitada (SRL) displaced both corporations and partnerships, and was especially popular for small and medium-sized firms whose owners were unrelated. Counter-factual calculations suggest that few enterprises created prior to 1919 would have chosen the SRL even if it had been available.

***Mentions: Jesus Alfaro (Full Professor of Business Law) Blog: ¿Qué llevaba a los comerciales españoles a elegir un tipo societario u otro?