Information, Institutions and Agency: The Crisis of Railroad Finance in the 1890s and the Evolution of Corporate Oversight Capabilities

Abstract

Using a broad socio-economic conception of capital markets agency relationships, this study analyzes an immportant economic transition in US economic history. It focuses on the institutional and informational changes that attended the reform of corporare governance and regulation in the railroad industry during the three decades following the depression of 1893 which was marked by extensive bankruptcy in the nation's largest business sector, the railroads. Institutional and social responses to his crisis provide a rich source for understanding the evolution of property rights and arrangements for enhancing corporate transparency and captial market efficiency. This study emphasizes the notion of path-dependent learning as a driver of institutional evolution. It notes that instituional responses were not limited to simple short-term, firm-specific relationships as is often usefully addressed by modern agency approahces. It also encompasses a variety of social, institutional and environmental factors that are often central in explaining the dynamic nature of organizations, capital markets and financial reporting.

Keywords: finance, railroads, learning, path dependency, corporate oversight, corporate governance, bankruptcy, reorganization, regulation, business history, institutional evolution

JEL Classification: D73, D8, G14, G3, G32, G33, G34, H11, K22, K23