Legal form affects the performance of a company

Tadeusz Dudycz ()
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Tadeusz Dudycz: Wrocław University of Science and Technology

European Journal of Law and Economics, 2025, vol. 60, issue 1, No 4, 143 pages

Abstract: Abstract Using the latent multidimensional approach, the paper examines the relationship between a company’s legal form and its performance. Based on 72,596 observations of companies operating in Poland, we show that the legal form has a strong relationship with the company’s efficiency. We reveal that the corporate form and limited liability, contrary to popular opinion, do not ensure the highest efficiency. They also do not stand out in terms of growth and risk. Entrepreneurship, direct involvement with the company, and the specific bond between partners are still key success factors. We also show that companies that are obliged to appoint governing bodies, favouring the separation of owners from management, are less efficient than those that do not have such an obligation. As a result, joint-stock companies, widely regarded as the pinnacle of the legal form, are characterized by lower efficiency than unlimited liability companies. We indicate that the reason is high agency costs, and this is confirmed by the cash ratio, used to approximate agency costs.

Keywords: Agency theory; Company growth; Company’s legal form; Performance; Systematic risk; Cooperative (search for similar items in EconPapers)
JEL-codes: G3 K2 L25 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10657-025-09852-0

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