Managing Agency Problems in Early Shareholder Capitalism : An Exploration of Liverpool Shipping in the 18th Century

We exploit a historical setting that offers an unusually clean test of the relationship between asset ownership and management incentives: captain ownership of vessels engaged in transatlantic shipping during the 18th century. Although contingent compensation aligned incentives between captains and shipowners regarding most events, there existed one hazard that could not easily be managed by contractual incentives: the threat of capture by privateering vessels of an enemy nation. We exploit variation over time and across routes to explore the relationship between the capture threat and equity ownership. We find that vessels were significantly more likely to have a captain-owner when they undertook wartime voyages on routes that were particularly susceptible to encounters with enemy privateers. We also find, after accounting for endogeneity, that vessels with captain-owners were less likely to be captured than those with non-owner captains