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

Posted by Social Science Research Network

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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