Please rotate your device to landscape mode to view the charts.

Why are corporations terminated? A century of evidence from the Netherlands

Journal: Business History

Date: 2025

Author: Christopher L. Colvin, Abe de Jong, Philip T. Fliers, Florian Madertoner

Abstract:
We identify all 196 Dutch exchange-listed corporations that halted their operations and ceased to exist between 1903 and 1996. We then explain these terminations using unique hand-collected accounting and governance data and regression techniques suited to long-run comparative analysis. Although Dutch bankruptcy laws remained unchanged across the twentieth century, patterns of corporate exit shifted markedly: shareholder-induced voluntary liquidations predominated before WWII, while creditor-driven bankruptcies became the norm thereafter. Our analyses suggest this transformation reflected a broader redefinition of corporate purpose, from a liberal shareholder-centric model before WWII, to a stakeholder-focused paradigm that emerged among Dutch business leaders in the post-war period. We further find that the Dutch government’s industrial policy initiatives in the 1970s did not succeed in reducing corporate failures. Our findings underscore how shifts in corporate purpose can fundamentally reshape business outcomes, even in the absence of formal legal changes.

Link: Google Scholar

Background and Context

Research Setting

This study examines all 196 Dutch corporations listed on the Amsterdam Stock Exchange that ceased operations between 1903 and 1996.

Legal Framework

Dutch bankruptcy laws remained virtually unchanged throughout the twentieth century, allowing researchers to isolate changes in corporate behavior.

Methodology

The authors used binary choice regression models to predict corporate terminations using hand-collected accounting and governance data.

Sharp Decline in Corporate Termination Rates After WWII

  • Termination probability fell from 7% before WWII to 3% after 1960, representing a 50% decline.
  • This dramatic reduction occurred despite unchanged bankruptcy legislation throughout the study period.
  • The change reflects a fundamental shift in how Dutch society viewed corporate purpose and responsibility.

Virtual Disappearance of Shareholder-Induced Liquidations Post-WWII

1903-1939 Liquidations 81% Bankruptcies 19% 1960-1996 Liquidations 15% Bankruptcies 85%
  • Before WWII, voluntary liquidations dominated corporate terminations, representing 81% of all exits from markets.
  • After 1960, bankruptcies became the primary termination method, accounting for 85% of corporate failures.
  • This shift indicates that shareholders lost their willingness to voluntarily close unprofitable businesses.

Fundamental Change in Corporate Termination Predictors Over Time

  • Before WWII, performance and governance factors explained 97% of variation in corporate terminations.
  • After 1960, financial structure factors became dominant, explaining 75% of termination variation.
  • This change reflects a shift from shareholder-focused decisions to creditor-driven bankruptcy processes.

Legal Cases Crystallized the Shift from Shareholder to Stakeholder Governance

1949 Doetinchemse IJzergieterij 1955 Forumbank Decision Corporate Interests Above Shareholder Interests
  • Two Supreme Court cases established that corporate interests take precedence over individual shareholder interests.
  • These legal precedents gave management authority to operate in the interest of business continuity.
  • The cases legally formalized the shift from shareholder primacy to stakeholder-oriented corporate governance.

Industrial Policy Failed to Reduce Corporate Bankruptcy Rates

Until 1971 No Direct Support ❌ No Impact on Failures 1972-1983 Targeted Industrial Policy ❌ No Impact on Failures From 1984 General Support ❌ No Impact on Failures
  • Government industrial policy across three distinct periods failed to statistically reduce bankruptcy probabilities.
  • Even targeted interventions for industrial firms showed no significant impact on corporate survival rates.
  • The findings align with parliamentary inquiries that criticized the misuse of government support funds.

Contribution and Implications

  • Demonstrates how corporate purpose can fundamentally reshape business outcomes without formal legal changes.
  • Provides quantitative evidence for the effectiveness of stakeholder-oriented corporate governance in reducing failures.
  • Shows that societal shifts in business philosophy can have profound impacts on corporate behavior.
  • Challenges assumptions about the necessity of legal reform to change corporate termination patterns.
  • Offers insights for modern debates about whether corporations should prioritize shareholders versus stakeholders.

Data Sources

  • Termination rates chart constructed from Figure 2 showing annual termination probability data across the century.
  • Liquidation versus bankruptcy proportions derived from descriptive statistics showing 162 pre-war versus 34 post-war terminations.
  • Variance decomposition chart based on Table 4 showing performance, financing, and governance factor contributions.
  • Legal timeline visualization based on Section 2.2 discussing the 1949 and 1955 Supreme Court cases.
  • Industrial policy analysis based on Table OA5 interaction effects and Section 6.1 policy period descriptions.