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Branch Banking Restrictions and Finance Constraints in Early-Twentieth-Century America

Published online by Cambridge University Press:  15 March 2005

DANIEL C. GIEDEMAN
Affiliation:
Assistant Professor, Department of Economics, Seidman College of Business, Grand Valley State University, 486C De Vos Center, 401 West Fulton, Grand Rapids, MI 49504-6431. E-mail: giedemad@gvsu.edu

Abstract

This article studies the effects of branch banking restrictions on American firm investment and growth. Authors have suggested that the lack of widespread branching bank networks hindered the development of large-scale industrial firms. This article presents a model that implies that restrictions on branch banking cause the severity of external finance constraints to increase with firm size. This hypothesis is tested using a panel data set of over 250 firms for 1911–1922. Investment and growth sensitivities are significantly higher for large firms than for smaller firms, suggesting that branch banking restrictions hindered the expansion of large-scale firms.

Type
ARTICLES
Copyright
© 2005 The Economic History Association

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