Voting rules and the success of connected lending in 19th century New England banks

How well do decision-making processes within firms serve as control mechanisms? The voting rules governing loan approval in early 19th century New England banks are analyzed to find out. These banks exhibited high levels of lending to directors and their associates. Some theories of corporate governance argue that this could lead to increased managerial opportunism. However, a model shows that banks that require more votes to be won in the loan approval process prevent projects with private gains and social costs. The historical data are consistent with the idea that higher levels of consensus raised the profitability of banks.