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Villains or Heroes? Private Banks and Railroads after the Sherman Act

By  |  December 4, 2016

Posted by Social Science Research Network

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    Villains or Heroes? Private Banks and Railroads after the Sherman Act

    Miguel Cantillo (Universidad de Costa Rica)

    Abstract:   This paper analyzes and measures the value that American private banks added as directors of non financial companies. Using data between 1874 and 1913, and an event study from 1906, I find that bank directors added about 20% of a firm’s market capitalization. Collusive practices encouraged by private banks accounted for 65% of this value, and were the equivalent of creating a three player market among railroads. About 35% of the value added by banks came from better governance. I argue that although policymakers were partly right in sidelining private banks as activist investors, this helped entrench managers.

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