Title

Organizational Form and Industry Emergence: Nonprofit and Mutual Firms in the Development of the U.S. Personal Finance Industry

ORCiD

0000-0002-9342-3285

Document Type

Article

Publication Title

Business History

ISSN

0007-6791

Volume

53

Issue

7

DOI

10.1080/00076791.2011.613618

First Page

1152

Last Page

1177

Publication Date

Fall 12-1-2011

Abstract

Economic theories of commercial nonprofits and mutuals usually emphasise the advantages of such organisational forms in reducing agency and monitoring costs in markets that suffer from information asymmetries in exchanges between firms and their customers. This article examines the ability of such transaction cost theories to account for historical variations in the ownership and governance of firms in the US personal finance industry between the early nineteenth century and the Great Depression. It focuses, in particular, on mutual savings banks and their role in the development of the intermediated market for savings accounts. While I find some evidence in support of transaction cost theories of organisational form, I also find that entrepreneurial and socio-political factors played crucial roles in the choice of ownership and governance structures; mutual savings banks predominated in the early years of the industry because the form offered entrepreneurial advantages over investor-owned corporations and because in some states they benefited from regulatory and political advantages that joint-stock companies lacked. Their relative decline by the early twentieth century was the result of increasing competition in the market for savings deposits, the loosening of regulatory barriers to entry, and changes in public policy that reduced the transaction, innovation, and regulatory advantages that the mutual savings bank form had once held. The article draws out the theoretical implications for our understanding of the historical role of nonprofit and mutual firms.

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