Replication data for: Investment Banks as Corporate Monitors in the Early Twentieth Century United States

Principal Investigator(s): View help for Principal Investigator(s) Carola Frydman; Eric Hilt

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20150143_data			10/12/2019 03:41:AM
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Project Citation:

Frydman, Carola, and Hilt, Eric. Replication data for: Investment Banks as Corporate Monitors in the Early Twentieth Century United States. Nashville, TN: American Economic Association [publisher], 2017. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E113038V1

Project Description

Summary: We study the effect of financial relationships on firms' investment decisions and access to external finance. In the early twentieth century, securities underwriters commonly held directorships with American corporations. Section 10 of the Clayton Antitrust Act prohibited bankers from serving on the boards of railroads for which they underwrote securities. We find that following the implementation of Section 10, railroads with strong preexisting relationships with underwriters saw declines in their investment rates, valuations, and leverage, and increases in their costs of external funds. Reassuringly, we do not observe similar effects among industrials and utilities, which were not subject to Section 10. Our results are consistent with underwriters on corporate boards acting as delegated monitors, and highlight the potential for regulations intended to address conflicts of interest to disrupt valuable information flows.

Scope of Project

JEL Classification:
      G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
      G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
      G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
      G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
      K22 Business and Securities Law
      N21 Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913
      N22 Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-

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Published Versions

V1 [2019-10-12]

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