Economic History Seminar

Du 17/01/2018 de 12:30 à 14:00

Salle R2-01, Campus Jourdan, 48 boulevard Jourdan, 75014 Paris

HILT Eric (Wellesley College)

Banks, Insider Connections, and Industrialization in New England: Evidence from the Panic of 1873.

Using newly collected data from Massachusetts, this paper documents the extent of bank director representation non-financial firms’ boards, and investigates whether bank-affiliated companies fared better during the recession that followed the Panic of 1873. Around 59 percent of all non-financial corporations had at least one bank director on their boards. These firms survived the recession of the 1870s at higher rates, and among the surviving firms, those with bank affiliations saw their growth rates and credit ratings decline less than firms without bank affiliations. Consistent with banker-directors helping to resolve problems related to asymmetric information, these effects were strongest among younger firms, and those with lower shares of fixed assets on their balance sheets. In contrast, the presence of bank cashiers on firms’ boards, which created an association with a bank without significantly increasing the likelihood of a credit relationship, had no effect. These results imply that during New England’s industrialization, affiliations with commercial banks helped nonfinancial corporations survive economic downturns.

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