NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Lily Y. Zhou

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Working Papers

July 2012Economic Effects of Runs on Early 'Shadow Banks': Trust Companies and the Impact of the Panic of 1907
with Carola Frydman, Eric Hilt: w18264
We use the unique circumstances that led to the Panic of 1907 to analyze its consequences for non-financial corporations. The onset of the panic occurred following a series of scandalous revelations about the investments of prominent financiers, which triggered widespread runs on trust companies associated with those men. Using newly collected data, we find that corporations with close ties to the trust companies that faced severe runs experienced an immediate decline in their stock price, and performed worse in the years following the panic: they earned fewer profits and paid fewer dividends, and faced higher interest rates on their debt. Consistent with the notion that information asymmetries aggravated the consequences of the contraction of credit intermediation, these effects were l...

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