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Unformatted text preview: Growth of Corporations A. Recall (Econ 2106) the economic benefits of corporate form of business organization: a. Limited liability- shareholders limited liability to the debt of the firm is limited to the amount of their investment b. Greater access to financial capital via stock sales c. Unlimited life B. Number of corporations Most factories small even in early 20th c.: Year 1900: average employees 25; year 1921 40 employees However, corporations emerged & grew employees rose complexity of operations increased Mechanization and mass production owners less involved in day-to-day operations increased reliance on paid professional managers By 1916, 340,000 corporations in U.S. C. Why the growth of "big business"? Market size [ falling transport cost (RR) National Markets Firms grew to serve the expanding market ] & urbanization Concentrations of o 1.)workers ( to provide labor for factories) o 2.)buyers who were heavily dependent on markets for household needs) o Also better system of communication allowed for broader marketing. Development of formal financial markets Growth of commercial banks firms can grow by borrowing from banks- good for firms b/c interest rates were decreasing increase competition decrease in interest rates Emergence & growth of investment banking : help firms sell stock and gain capital ! Investment banks assisted firms w/ finding investors/shareholders and gaining access to financial capital necessary for growthgrew more rapidly in US than in England! Legal environment limited liability - accepted in most states by 1860 easier process for incorporation o In early/mid 1800s most states used a legislative process for granting corporate charters (political; often slow) o By late-1800s most states had converted to an administrative process...
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- Spring '07