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Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873

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  • Christopher Cotter

Abstract

Although corporate default crises are often quite severe, previous work has found little impact on real macroeconomic variables. This article investigates the relationship between railroad defaults and the balance sheets of local banks following the Panic of 1873. Receivers appointed to run railroads in default lacked the legal tools necessary to fully maintain railroad operations. The results indicate that railroad bond defaults negatively impacted the lending activity of local banks. Affected banks experienced declines in loans and deposits along with increases in excess reserves. These findings point to a disruption of the transportation network attributable to the railroad bond default crisis.

Suggested Citation

  • Christopher Cotter, 2021. "Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 508-513, May.
    • Handle: RePEc:aea:apandp:v:111:y:2021:p:508-13
    DOI: 10.1257/pandp.20211096
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    Cited by:

    1. Lyndon Moore & Gertjan Verdickt, 2022. "Railroad Bailouts in the Great Depression," Papers 2205.13025, arXiv.org, revised May 2023.

    More about this item

    JEL classification:

    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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