Does Regulation Matter? An Analysis of Corporate Charters in a Laissez-Faire Environment

GONZALO ISLAS ROJAS
REVISTA DE HISTORIA ECONÓMICA / JOURNAL OF IBERIAN AND LATIN AMERICAN ECONOMIC HISTORY 31.1 (2013): 11-39

Are laws that protect minority investors a necessary condition for the development of stock markets? This paper attempts to answer this question using data on the origins of the corporate sector in Chile to construct an empirical analysis of the contractual provisions included in charters of corporations in the 19th century. Our findings indicate that, even though corporate law at the time was silent with respect to governance rules and investor protection, a significant number of corporations were created and their shares traded. The empirical analysis of the corporate charters reveals that these contracts frequently included provisions favorable to outside investors and the use of these provisions is consistent with the predictions of a simple agency model.