Information, institutions and agency: the crisis of railroad finance in the 189os and the evolution of corporate oversight capabilities

Abstract

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