Partnership Law And Credit Availability

Legal and economic historians now emphasize the centrality of organizational law in determining the contractual boundaries of the firm. Nineteenth-century US law recognized a small set of firm types - proprietorship, partnership and corporation - and enforced the creditor rights and priorities associated with them. This paper investigates how those creditor rights and priorities influenced the availability of credit. Using a unique data set from the nineteenth century United States and borrower fixed effects; the author finds that partnerships paid more for credit than proprietorships. The interest rate disadvantage for partnerships was offset by their ability to finance larger and longer-horizon entrepreneurial ventures.

Provided by: National Bureau of Economic Research Topic: CXO Date Added: Jan 2011 Format: PDF

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