Debt, decline and direction: Essays on corporate finance and strategy in historical perspective

This dissertation comprises three main chapters that explore pivotal topics in finance and corporate history, focusing on the historical interaction between corporate financing and operations. Businesses rely on funding for purposes such as acquiring assets and meeting ongoing employee payments, essential to building their value propositions in competitive markets. The relationship between financing and operations is inherently complex, shaped by the scarcity of capital, the influence of financiers, and the transformative impact of financial innovations.
The research specifically highlights three focal topics: the early adoption of convertible bonds in the Netherlands, patterns of stock exchange-listed corporate terminations over the twentieth century, and the survival strategies of a glass factory amidst challenging industry dynamics. Collectively, these chapters enhance our understanding of financial innovation, corporate longevity, and the critical role of leadership in navigating organizational resilience.
The first chapter builds on modern finance theory, particularly models inspired by Modigliani and Miller’s foundational framework for optimal financing. These models investigate the interplay between financing and product-market decisions, addressing key challenges like asymmetric information and conflicting interests.
The second chapter employs historical and economic analysis, using archival sources to reconstruct firms' past financing and operational choices. This approach includes detailed case studies as well as the creation of an extensive database for econometric analysis.
The third chapter delves into current debates on corporate purpose, offering a historical view on the question of whether firms should prioritize shareholder interests exclusively or incorporate broader societal goals.
In its entirety, the dissertation examines the intricate and evolving relationship between corporate financing and operations, leveraging insights from finance theory, economic analysis, historical research, and contemporary discussions on corporate governance.
The second chapter investigates the introduction of convertible bonds in the Netherlands, examining their origins and the motivations behind their issuance. We rely on primary and secondary sources, exploring early instances of convertible bond issuance in Britain, the United States, and three Dutch cases in the nineteenth century. Our research reveals that the depletion of internal funding sources and the unavailability of traditional financing options led firms to issue convertible bonds as a practical solution driven by high risk and credit rationing. The chapter also highlights the role of personal networks and external factors in facilitating the diffusion of convertible bond innovation in the Netherlands.
The third chapter delves into the terminations of stock exchange-listed corporations in the Netherlands throughout the twentieth century. By utilizing a comprehensive dataset and a control group of non-terminated firms, the study examines termination probabilities, changes in termination correlates, and the reasons behind these changes. The findings show a significant decrease in termination probabilities over time, attributed to substantial growth until the 1970s and a shift in termination types from voluntary liquidations to involuntary bankruptcies. The determinants of corporate termination also underwent a transformation, with non-financial factors playing a substantial role before World War II and financial factors becoming the primary drivers after 1960. Our research suggests that these shifts can be attributed to a paradigm change in Dutch corporate governance culture, transitioning from a shareholder-dominated regime to a stakeholder-inclusive system.
The fourth chapter revolves around the two-edged sword that is purposeful leadership. In discussions of successful enterprises, the idea of "doing well by doing good" is often illustrated through case studies of firms and their leaders. These organizations combine purposeful business strategies with profitability, balancing the interests of financiers and stakeholders. However, our case study of P. M. Cochius’ leadership at Leerdam’s Glass Factory offers a more nuanced perspective.
Cochius’ vision led to the creation of artistic glassware admired worldwide, as he sought to improve the lives of his workers through social reforms. Yet, the interwar period posed significant challenges. Leerdam’s reliance on artisan craftsmanship faltered as Cochius expanded production through a new factory, struggling to compete with more agile rivals. His focus on artistry and lack of technical expertise hindered the company’s ability to modernize, contributing to financial decline and mounting debt.
This case demonstrates the complexity of leadership: while stakeholder-driven business models offer societal benefits, they can strain financial performance and highlight the challenges of balancing innovation with effective management.
This dissertation seeks to address key questions within the fields of economic and business history, corporate finance, and corporate governance, emphasizing the value of a historical perspective. In this chapter, I will argue that incorporating historical analysis can significantly enrich research in these areas, particularly in four ways.
First, business history offers a comprehensive context for understanding the development and patterns of businesses, industries, and economies over time (Wilson, 1995, p. 3). By examining historical case studies and long-term trends, we can identify recurring patterns, assess their causes and consequences, and gain deeper insights into contemporary business challenges. For example, historical data enabled us to uncover the motivations behind the adoption of convertible bonds in the Netherlands.
Second, studying business history allows for lessons from both the successes and failures of past companies and entrepreneurs. Analyzing historical examples reveals strategies, management practices, and business models that led to success or failure, providing valuable insights for present and future business leaders. In Chapter Three, we identify the drivers of firm failure in a large sample of firms, offering actionable lessons for modern decision-making.
Third, business history contributes to understanding and shaping corporate identity and organizational culture. Recognizing a company’s historical milestones fosters a sense of heritage and purpose, strengthening internal identity and informing strategic decisions. Analyzing successful companies provides a framework for understanding long-term success, as exemplified by NV Leerdam. CEO Cochius forged a corporate culture that enabled the firm’s survival beyond the expectations of economic theory. It also allows for examples against the odds: based on the analyses in Chapter 3, Leerdam would be expected to be liquidated; Chapter 4 demonstrated why this has not happened.
Finally, business history offers a unique lens to examine long-term trends and economic development. It highlights the drivers of economic growth, technological advancements, and industry transformations. Our research on firm failure and NV Leerdam demonstrates how technological innovations reshaped the glass industry and spurred the rise of managerial roles. By studying historical data, we gain insights into economic crises and structural market changes, enriching our understanding of economic phenomena and informing contemporary policy.