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

Summary:  View help for 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.

JEL Classification:  View help for 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-