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Financial Market Discipline in Early-Twentieth-Century Mexico

Published online by Cambridge University Press:  26 August 2005

ELISABETH HUYBENS ,
ASTRID LUCE JORDAN  and
SANGEETA PRATAP
ELISABETH HUYBENS
Affiliation:
Elisabeth Huybens is Country Manager, Timor Leste, The World Bank, 1818 H Street NW, Washington, DC 20433. E-mail: ehuybens@worldbank.org.
ASTRID LUCE JORDAN
Affiliation:
Astrid Luce Jordan is Coordinator of Planning and Strategy, Latin American Fuels Planning and Strategy Unit, British Petroleum Mexico, Av. Revolucion 775, Mexico D.F. 03700. E-mail: astrid.luce@bp.com.
SANGEETA PRATAP
Affiliation:
Sangeeta Pratap is Assistant Professor, Centro de Investigación Económica, Instituto Tecnológico Autónomo de México, Av. Camino Sta. Teresa #930, México D.F. 10700. E-mail: pratap@itam.mx.
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Abstract

We test for the presence of market discipline in the banking sector in early-twentieth-century Mexico. Using financial data from note-issuing banks between 1900 and 1910, we examine whether bank fundamentals influenced the patterns of withdrawals and of note issue. We show that fundamentals were a strong determinant of bank withdrawals and note issue, indicating that market discipline was an important feature of the banking system in this period. This result crucially depends on correcting for selection bias generated by the exit of several banks in the 1907 crisis.

Type
ARTICLES
Information
The Journal of Economic History , Volume 65 , Issue 3 , September 2005 , pp. 757 - 778
Copyright
© 2005 The Economic History Association

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