Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873
AEA Papers and Proceedings
vol. 111,
May 2021
(pp. 508-13)
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.Citation
Cotter, Christopher. 2021. "Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873." AEA Papers and Proceedings, 111: 508-13. DOI: 10.1257/pandp.20211096Additional Materials
JEL Classification
- L92 Railroads and Other Surface Transportation
- N21 Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913
- G32 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: Transport, Trade, Energy, Technology, and Other Services: U.S.; Canada: Pre-1913
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G01 Financial Crises