Abstract: Related Investing: Corporate Ownership and the Dynamics of Capital Mobilization during Early Industrialization
Scholars engage in extensive debate about the role of families and corporations in economic growth. Some propose that personal ties provide a mechanism for overcoming such transactions costs as asymmetrical information, while others regard familial connections as inefficient with the potential for corruption and exploitation of minority shareholders. This empirical study is based on a unique panel data set comprising all the shareholders in manufacturing corporations in Maine during the period of market expansion. Related investing was widespread among both elite and small shareholders, and seems to have been pervasive throughout the firm and the corporate economy during the critical period of early industrialization. Such ties were especially evident among ordinary investors in emerging industries and in the newer, more risky investments. ''Outsiders'' were able to overcome a lack of experience and information by taking advantage of their own networks. The link between related investing and the concentration of ownership in the corporations suggests that this phenomenon was likely associated with a reduction in perceptions of risk, especially beneficial for capital mobilization in manufacturing and transportation. These patterns are consistent with a more productive interpretation of related investing and its function in newly developing societies.