A theory of path dependence in corporate ownership and governance

Corporate structures differ among the advanced economies of the world. we c ontribute to an understanding of these differences by developing a theory o f the path dependence of corporate structure. The corporate structures that an economy has at any point in time depend in part on those that it had at earlier times. Two sources of path dependence-structure driven and rule dr iven-are identified and analyzed. First, the corporate structures of an eco nomy depend on the structures with which the economy started Initial owners hip structures have such an effect because they affect the identity of the structure that would be efficient for any given company and because they ca n give some parties both incentives and power to impede changes in them.,Se cond, corporate rules, which affect ownership structures, will themselves d epend on the corporate structures with which the economy started. Initial o wnership structures can affect both the identity of the rules that would li e efficient and the interest group politics that can determine which rules would actually be chosen. Our theory of path dependence sheds light on why the advanced economies, despite pressures to converge, vary in their owners hip structures. It also provides a basis for why some important differences might persist.