An Original Solution to Agency Issues Among PreWWI Paris-Listed Firms: The Statutory Rule of Profit Allocation

Emilie Bonhoure ()
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Emilie Bonhoure: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Agency issues (the conflicts that arise due to the divergence of stakeholders' interests within firms) remain a critical challenge faced by companies. Unfortunately, there is hardly any existing solution that can claim to mitigate all agency issues at the same time. In this study, I examine an original governance mechanism, widespread within French firms at the turn of the 20th century, which could do so: a statutory rule of profit allocation. It fixed in corporate statutes the part of profits to be allocated to a pre-determined set of agents. Contrary to other solutions, this rule could indeed be a way to solve several types of agency issues at the same time. Focusing on the allocations to shareholders, I show that this was the case: firms with more severe agency conflicts promised a higher part of profits to shareholders. I also provide evidence of the efficiency of this rule. Firms with more severe agency issues did not deviate too much from it (despite the specific deviations sometimes allowed) and distributed actual dividends close to the promised ones.

Keywords: Profit allocation; Corporate governance; Dividend policy; Agency theory; Historical finance; France (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-his
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