Legal Origins of Corporate Governance: Choice of Company Law in Egypt, 1887-1913

Cihan Artunç (Middlebury College)

The literature views that corporate governance structures should promote their shareholders’ interests, and that Anglo-American legal rules achieve this more effectively than regimes derived from French civil law. However, the legal regime under which a business incorporates cannot be disentangled from other sources that can influence firm outcomes. Furthermore, few studies explore the details of rules corporations put in their articles of association. This paper takes a first step in disentangling these effects by assembling a new dataset of corporations in Egypt between 1887 and 1913. Egypt had an unusual system of incorporation. The main legal system was transplanted from France but entrepreneurs could incorporate under any European law. This legal flexibility led to considerable variation in governance structures and board makeup. The results suggest that companies incorporated under British law were less shareholder-friendly than those under French law – regardless of the nationality of founders, industry, or size – and were less successful in surviving the financial crisis of 1907.