Should History Lock in Lock-In?

Abstract

The corporation does not allow owners, at least by default, to cash out their interests. This feature of "capital lock-in" facilitates durable and centralized management of corporate assets. It has been argued that capital lock-in is what has made the corporation the dominant business form and has enabled the modern firm. This argument for the historical significance of capital lock-in is intended to provide a rationale for rejecting reforms that would compromise lock-in. However, lock-in has costs, including inhibiting effective monitoring of managers. Moreover, the historical argument is inaccurate, since lock-in has always been available in the partnership form. Lock-in should be viewed as just one of many features of firms that evolve to meet business needs, not frozen in place by a dubious account of the past.