Aldo Musacchio provides a well-researched and argued examination of the role of corporate governance in financial development. Experiments in Financial Democracy “provide[s] new insights that should inform not only policymakers, but also corporate managers…” (p. 16) Economic and financial historians will also find the book useful and interesting. Musacchio joins the fray in current debates on factors affecting the efficacy of capital markets. To anticipate its conclusion, the book finds that corporations can establish governance structures to protect shareholders, without relying on government regulation to enforce compliance.

Two hypotheses frame Experiments in Financial Democracy. First, the author enters the current scholarly debate over the primacy of common law in contrast to civil law in promoting the instruments of financial investment, arguing against the view that common law is intrinsically superior in supporting financial development. Second, the book challenges the idea that institutional arrangements irrevocably establish linear path dependence in financial development. The experience of Brazil, a civil code nation, from the end of the nineteenth to the middle of the twentieth centuries provides the test case for these ideas. The book is convincing on the central theme that corporate governance can serve to protect, and thus to attract, small investors. The practices that seem to have made a difference in the Brazilian experience include financial disclosure, voting rights, and creditor (bondholder) rights. The available evidence cannot settle the question of whether executive compensation accurately priced a “talent premium” or included some extraction of shareholder value. The second major hypothesis of the book, arguing against linear path dependence of institutional arrangements, also finds decisive confirmation in the book, and in Brazilian history. A period of flourishing financial development from the end of the nineteenth century until World War I abruptly reversed course thereafter. Most of the remainder of the twentieth century was a story of closed financial markets, heavy regulation, increasingly concentrated corporate ownership, and a shift from capital markets to banks as sources of financing.

The easy reversal of financial market development after World War I suggests limits to the corporate governance argument. Most importantly, it begs the question of the constraints posed by the macroeconomic environment for the potential of strong independent corporate governance. The period of Brazil's “financial experiments” coincides with an era of notably open financial markets that supported economic growth. Musacchio recognizes that the post-World War I (and even more strongly post-Depression) macro environment, with overvalued currency, associated inflation, and barriers to capital flows, overwhelmed the ability of corporate governance procedures to attract investors. In the end, Brazil was left with a period of only about twenty-five to thirty years of “good” corporate governance.

Musacchio also notes that a dynamic secondary market in equity shares was not sustained in parallel with the primary (origination) market after a brief bubble in the early 1890s. A dynamic secondary market would formalize the investor benefits of “democratic” financial markets, demonstrate the wide acceptance of financial forms of investments, and demonstrate the viability of the enterprises traded on the exchanges. Conversely, the absence of a secondary market again suggests limitations on corporate financial governance.

Three interrelated lines of reasoning suggest that framing Experiments in Financial Democracy within the common vs. civil law debate situates the book more narrowly than necessary. First, this argument relies on the observation that, absent effective legal structure, corporations can govern themselves in ways that protect small shareholders. Musacchio does not suggest that legal regime determines governance regime (the strongest test of the hypothesis.) As the book reveals, Brazilian corporations established their governance practices within parameters of some legal regulation. The interplay, as much as the dichotomy, between regulation and independent corporate governance practices may inform future research. Finally, an underlying embedded assumption of the book is that a given set of “good” corporate governance practices exists that are equally applicable across firms and macroeconomic settings.

Studying Brazilian financial history is difficult because of the data constraints and the difficulty of data accumulation. Experiments in Financial Democracy makes a substantial contribution to remedying this problem. Musacchio has been resourceful and industrious in getting to the financial data of the stock exchange and the corporate records of its participating companies. The mining of individual bankruptcy proceedings is especially notable. Some data issues may not be resolvable. The most important is the measurement of capitalization levels by the par, rather than market, value of equity shares. Secondarily, economic historians of Brazil have always suffered the lack of good price indices; the index invoked in this book, developed in 1986 by Raymond Goldsmith, is problematic. Although no good solutions currently exist to either of these problems, they can leave a detail-oriented reader uneasy. A final quibble is that the manuscript could have benefited from more detailed copyediting than it received.

In sum, Experiments in Financial Democracy accomplishes the goals of good academic research. The book uses one important and difficult case study to deeply examine important questions in the history of financial markets that are normally reserved for more “developed” economies. The empirical analyses and data are ingenious. This book is the first major in-depth and long-term study of Brazilian financial history since Bárbara Levy's (História da bolsa de valores do Rio de Janeiro. Rio de Janeiro: IBMEC, 1977) and John Welch's (Capital Markets in Development: The Case of Brazil, Pitt Latin America Series. Pittsburgh: University of Pittsburgh Press, 1993); it brings the issues currently of interest in the worlds of financial history and corporate governance to Brazilian historiography and suggests exciting follow-up research questions. This reviewer will have to leave it to corporate managers and policymakers to decide if the book meets their needs.