In the paper, Managing Agency Problems in Early Shareholder Capitalism: An Exploration of Liverpool Shipping in the 18th Century, which was recently made publicly available on SSRN, we use historical data on Liverpool transatlantic shipping to examine the effect of equity ownership on top manager behavior. We found that the pattern of equity ownership by captains in the vessels that they piloted was not random. Rather, vessels that were at particular risk of attack by enemy privateers were significantly more likely to have captains who were also part-owners. This is consistent with an agency view of equity ownership. Owners preferred that captains resist privateers fiercely, but it was difficult to construct contractual incentives to elicit such behavior. Partial ownership of the vessel by the captain was one mechanism by which to align captains’ and owners’ incentives regarding the privateer threat, and consequently to elicit desired behavior from captains.

We found that equity ownership was associated with a lower likelihood that a vessel would be captured by privateers. Difference of means tests indicated a statistically significant reduction. Multivariate estimation indicated a stable, negative effect of captain-ownership on the likelihood of being captured by privateers, although the statistical significance of this relation-ship varied across models. Overall, the use of equity ownership by Liverpool vessel owners, and the effect of equity ownership on vessel captains’ behavior, appears to be largely consistent with agency theory’s predictions about the modern use and effect of equity on shareholder and top management behavior.

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