Hostname: page-component-8448b6f56d-c4f8m Total loading time: 0 Render date: 2024-04-25T05:43:58.577Z Has data issue: false hasContentIssue false
  • English
  • Français

Did Glass-Steagall Increase the Cost of External Finance for Corporate Investment?: Evidence From Bank and Insurance Company Affiliations

Published online by Cambridge University Press:  03 March 2009

Carlos D. Ramírez
Carlos D. Ramírez
Affiliation:
Assistant Professor, Department of Economics, George Mason University, Fairfax, VA 22030, Phone (703) 993-1145, Fax (703) 993-1133. E-mail cramire2@osf1.gmu.edu.
Get access Rights & Permissions [Opens in a new window]

Abstract

The Glass-Steagall Act may have increased the cost for corporations of raising external funds for investment spending. Significant differences are found in the way financial institutions influenced corporate investment spending. Investment regressions for a sample of companies affiliated to financial institutions are estimated and compared to those for a control sample. Prior to Glass-Steagall, affiliated companies do not display any sensitivity between investment spending and internal measures of liquidity, whereas the control sample does.

Type
Articles
Information
The Journal of Economic History , Volume 59 , Issue 2 , June 1999 , pp. 372 - 396
Copyright
Copyright © The Economic History Association 1999

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Baliga, Sandeep, and Polak, Ben. “Bank Versus Bonds: A Simple Theory of Comparative Financial Institutions” Cowles Foundation Discussion Paper No. 1100, Yale University, New Haven, CT, 1995.Google Scholar
Becht, Marco, and Ramífrez, Carlos D.. “Financial Capitalism in Pre–Worid War I Germany: The Role of the Universal Banks in the Financing of German Mining Companies, 1906–1912. Working Paper, European University Institute, 1993.Google Scholar
Benston, George S.The Separation of Commercial and Investment Banking: The Glass Steagall Act Revisited and Reconsidered. New York: Oxford University Press, 1990.CrossRefGoogle Scholar
Charles, Calomiris. “The Cost of Rejecting Universal Banking: American Finance in the German Mirror, 1870–1914”. In Coordination and Information: Historical Perspectives on the Organization of Enterprise, edited by Lamoreaux, Naomi R. and Raff, Daniel M. G. pages 257–315. Chicago: University of Chicago Press, 1995.Google Scholar
Charles, Calomiris, and Raff, Daniel M. G.. “The Evolution of Market Structure, Information, and Spreads in American Investment Banking”. In Anglo-American Finance Systems: Institutions and Markers in the 20th Century, edited by Bordo, Michael and Sylla, Richard, 103–60. Burr Ridge, IL: Irwin Publishers, 1996.Google Scholar
Charles, Calomiris, and Ramírez, Carlos D.. “The Evolution of American Corporate Finance”. In The American Corporation: A Second Look, edited by Kaysen, Carl, 128–86. New York: Oxford University Press, 1995.Google Scholar
Carosso, Vincent P.Investment Banking in America: A History. Cambridge, MA: Harvard University Press, 1970.Google Scholar
Chandler, Alfred D.The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Harvard University Press, 1977.Google Scholar
Chernow, Ron. The House of Morgan. Boston: Atlantic Monthly Press, 1990.Google Scholar
Long, De, Bradford, J.. “Did J. P. Morgan's Men Add Value? An Economist's Perspective on Financial Capitalism”. In Inside the Business Enterprise: Historical Perspectives on the Use of Information, edited by Temin, Peter, 205–36. Chicago: University of Chicago Press, 1991.Google Scholar
Diamond, Douglas. “Financial Intermediation and Delegated Monitoring”. Review of Economic Studies 51, no. 3 (1984): 393–414.Google Scholar
Diamond, Douglas. “Monitoring and Reputation: The Choice Between Bank Loans and Directly Placed Debt”. Journal of Political Economy 99, no. 4 (1991): 689–721.CrossRefGoogle Scholar
Dooley, P. C. “The Interlocking Directorate”. American Economic Review 59, no.3 (1969): 314–23.Google Scholar
Edwards, George W.The Evolution of Finance Capitalism. New York: Augustus M. Kelley, Reprints, 1967.Google Scholar
Fazzari Stevan, R. Glenn Hubbard, and Petersen, B.. “Financing Constraints and Corporate Investment”. Brookings Papers on Economic Activity 1, no. 1 (1988): 141–95.CrossRefGoogle Scholar
Fazzari Stevan, R. Glenn Hubbard, and Petersen, B.. “Financing Constraints and Corporate Investment: Response to Kaplan and Zingales”. NBER Working Paper No. 5462, Cambridge, MA, 1996.Google Scholar
Fohlin, Caroline M. “Relationship Banking and Firm Liquidity Constraints: Evidence from the Heyday of the German Universal Banks”. California Institute of Technology, Social Science Working Paper 913, Pasadena, CA, 1994.Google Scholar
Goldsmith, Raymond W.Financial Intermediaries in the American Economy since 1900. Princeton, NJ: Princeton University Press, 1958.Google Scholar
Gompers, Paul, and Lerner, Josh. “Conflict of Interest and Reputation in the Issuance of Public Securities: Evidence from Venture Capital”. Working Paper, Harvard Business School, Cambridge, MA, 1997.Google Scholar
Halaas, E. T. “Legal Control of Life Insurance Company Investments”. Journal of Business 5, no. 3 (1932): 321–34.Google Scholar
Hoshi, Takeo, Kashyap, Anil, and Scharfstein, David. “Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships”. In Asymmetric Information, Corporate Finance, and Investment, edited by Glenn Hubbard, R., 105–26. Chicago: University of Chicago Press, 1990.Google Scholar
Hoshi, Takeo, Kashyap, Anil, and Scharfstein, David. “Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups”. Quarterly Journal of Economics 106, no. 1 (1991): 33–60.Google Scholar
Johnston, J.. Econometric Methods. New York: McGraw-Hill Book Company, 1984.Google Scholar
Kaplan, Steven N., and Zingales, Luigi. “Do Financing Constraints Explain Why Investment Is Coirelated with Cash Flow?” NBER Working Paper No. 5267, Cambridge, MA, 1995.Google Scholar
Kroszner, Randall S., and Rajan, Raghuram G.. “Organization Structure and Credibility: Evidence From Commercial Bank Securities Activities Before the Glass-Steagall Act.” NBER Working Paper No. 5256, Cambridge, MA, 1995.Google Scholar
Kroszner, Randall S., and Rajan, Raghuram G.. “Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking Before 1933”. American Economic Review 84, no. 4 (1994): 810–32.Google Scholar
Pecora, Ferdinand. Wall Street Under Oath. New York: Simon and Schuster, 1939.Google Scholar
Puri, Manju. “The Long-Term Default Performance of Bank Underwritten Securities Issues.” Journal of Banking and Finance 18, no. 2 (1994): 397–418.Google Scholar
Rajan, Raghuram. “Insiders and Outsiders: The Choice Between Informed and Ann's Length Debt”. Journal of Finance 47, no. 4 (1992): 1367–400.Google Scholar
Ramírez, Carlos D., “Did J. P. Morgan's Men Add Liquidity? Corporate Investment, Cash Flow, and Financial Structure at the Turn of the Twentieth Century”. Journal of Finance 50, no. 2 (1995): 661–78.CrossRefGoogle Scholar
Ramírez, Carlos D., and Bradford De Long, J.. “Bank Influence and Firm Performance: the Impact of DePression-era Financial Markets Reforms”. In Anglo-American Finance Systems: Institutions and Markets in the 20th Century, edited by Bordo, Michael and Sylla, Richard, 161–77. Burr Ridge, IL: Irwin Publishers, 1995.Google Scholar
Roe, Mark J.Strong Managers, Weak Owners. Princeton, NJ: Princeton University Press, 1994.Google Scholar
Stiglitz, Joseph, and Weiss, Andrew. “Credit Rationing in Markets with Imperfect Information”. American Economic Review 71, no. 3 (1981): 393–410.Google Scholar
Smith, George D., and Sylla, Richard. “The Transformation of Financial Capitalism: An Essay on the History of American Capital Markets”. Financial Markets, Institutions, and Instruments 2, no. 2 (1993): 1–61.Google Scholar
Sylla, Richard. “American Banks and the Finance of Industry, 1880–1920: Perspectives on the Visible Hand”. In Transformation of Bank Structures in the Industrial Period, edited by Bovykin, V. I., pages 43–51. Budapest, Hungary: 8th International Economic History Congress, 1982.Google Scholar
Tobin, James. “A General Equilibrium Approach to Monetary Theory”. Journal of Money, Credit and Banking 1, no. 1 (1969): 15–29.Google Scholar
Webb, David. “Long-Term Financial Contracts Can Mitigate the Adverse Selection Problem in Project Financing”. International Economic Review 32, no. 2 (1991): 305–20.Google Scholar
White, Eugene. “Before the Glass-Steagall Act: An Analysis of the Investment Banking Activities of National Banks“. Explorations in Economic History 23, no. 1 (1986): 33–55.Google Scholar