This dissertation examines the Chinese Shanxi piaohao, arguably the most important Chinese indigenous financial institutions in the nineteenth century, which emerged in one particular province. Concentrating on their governance structure, business strategy, and historical development, my thesis explores the emergence, growth and decline of the piaohao, and asks how they solved the commitment problem and developed their business by means of modern economists’ tools, such as path dependency and the principal agent model. This study uses a wealth of microeconomic data, which, although published, had not been digitized and properly analysed before. My work reveals that the emergence of the Shanxi piaohao shows reactive sequence path dependence. In a situation which gave little protection to shareholders’ capital, it imposed a highly centralized management structure, and a tenure- and performancebased incentive structure to discipline distant employees. Moreover, through establishing a widespread branch network, providing services to a wide range of clients, inventing various types of draft, and pricing remittance fees on diverse factors, the Shanxi piaohao were soon successful and controlled the Chinese remittance market for many decades. However, as it expanded and as China’s social and business environment became more unpredictable, the piaohao’s head managers reached the limits of their competence and its centralized management structure began to show diminishing returns. High financial leverage and a narrowed profits margin also indicated the hidden risks to the piaohao. When the 1911 Revolution broke out and ended China’s last feudal dynasty, many piaohao branches encountered immense losses from looting, bad loans and deposit withdrawals. It was during this time that modern Chinese banks and foreign banks penetrated the Chinese remittance market and poached the piaohao’s staff. Because the piaohao shareholders shared unlimited liabilities, when these threats materialized, many of them went bankrupt, while others turned to investments elsewhere and abandoned the piaohao.