Research Papers:
Cotter, C. 2021. Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873. AEA Papers and Proceedings, 111: 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.
Extended working paper version here.
Cotter, C., Rousseau, P.L. and Vu, N.T. 2021. Electrification, telecommunications, and the finance-growth nexus: Evidence from firm-level data. Energy Economics, 94, p.1050-73.
Abstract: We explore variations in access to energy and telecommunications improvements across firms in 57 and 112 developing countries, respectively, between 2002 and 2014, and find that national investments in technological infrastructures provide a channel through which financial development promotes firm-level adoption of tangible innovations. In particular, when countries make large investments in their energy (electricity and natural gas) and telecommunications infrastructures, firms with greater access to financial resources are better positioned to benefit from these investments, experiencing significantly fewer power interruptions, more adoptions of power generators, and greater website use, all of which are related to higher firm-level growth in sales and employment.
"Correspondent Banking, Systematic Risk, and the Panic of 1893," with Peter L. Rousseau [under review]
Abstract: During the U.S. National Banking Period (1863-1913), a network of correspondent banking relationships left the nation vulnerable to systematic risks, bank failures, and financial panics. We use comprehensive data on primary correspondent relationships for all national, state, savings, and private banks in the lead up to the Panic of 1893 to show that failures of both upstream and downstream correspondents increased the likelihood that a given bank would itself fail, and that these effects varied over the course of the Panic. Members of the New York Clearinghouse, despite a very low incidence of actual failure, also saw significant weakening of their balance sheets early in the Panic when their downstream respondents failed, and falling stock prices throughout the disruption. The results demonstrate a two-way system-wide weakness of the correspondent system that the Federal Reserve Act of 1914 presumably sought to remedy.
“Regulatory Competition, State Banking, and Economic Growth in the National Banking Period”
Abstract: The dual banking system created an environment of regulatory competition between state and federal bank regulators that led to the passage of free banking laws in a number of states prior to 1900, allowing state-chartered banks to open in areas underserved by federally-chartered banks. This paper demonstrates the role that this expansion of state-chartered banking played in promoting economic growth. I use both an initial banking variables approach and an instrumental variables approach to identify the impact of state banking growth on county-level output and capital. The results indicate that state banks significantly contributed to output and capital growth in the agricultural sector, while the impact of national banks is concentrated primarily in the manufacturing sector. These findings suggest that state free banking laws, encouraged by regulatory competition, significantly increased the growth of agricultural output and capital during this period.
Cotter, C. 2021. Off the Rails: The Real Effects of Railroad Bond Defaults following the Panic of 1873. AEA Papers and Proceedings, 111: 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.
Extended working paper version here.
Cotter, C., Rousseau, P.L. and Vu, N.T. 2021. Electrification, telecommunications, and the finance-growth nexus: Evidence from firm-level data. Energy Economics, 94, p.1050-73.
Abstract: We explore variations in access to energy and telecommunications improvements across firms in 57 and 112 developing countries, respectively, between 2002 and 2014, and find that national investments in technological infrastructures provide a channel through which financial development promotes firm-level adoption of tangible innovations. In particular, when countries make large investments in their energy (electricity and natural gas) and telecommunications infrastructures, firms with greater access to financial resources are better positioned to benefit from these investments, experiencing significantly fewer power interruptions, more adoptions of power generators, and greater website use, all of which are related to higher firm-level growth in sales and employment.
"Correspondent Banking, Systematic Risk, and the Panic of 1893," with Peter L. Rousseau [under review]
Abstract: During the U.S. National Banking Period (1863-1913), a network of correspondent banking relationships left the nation vulnerable to systematic risks, bank failures, and financial panics. We use comprehensive data on primary correspondent relationships for all national, state, savings, and private banks in the lead up to the Panic of 1893 to show that failures of both upstream and downstream correspondents increased the likelihood that a given bank would itself fail, and that these effects varied over the course of the Panic. Members of the New York Clearinghouse, despite a very low incidence of actual failure, also saw significant weakening of their balance sheets early in the Panic when their downstream respondents failed, and falling stock prices throughout the disruption. The results demonstrate a two-way system-wide weakness of the correspondent system that the Federal Reserve Act of 1914 presumably sought to remedy.
“Regulatory Competition, State Banking, and Economic Growth in the National Banking Period”
Abstract: The dual banking system created an environment of regulatory competition between state and federal bank regulators that led to the passage of free banking laws in a number of states prior to 1900, allowing state-chartered banks to open in areas underserved by federally-chartered banks. This paper demonstrates the role that this expansion of state-chartered banking played in promoting economic growth. I use both an initial banking variables approach and an instrumental variables approach to identify the impact of state banking growth on county-level output and capital. The results indicate that state banks significantly contributed to output and capital growth in the agricultural sector, while the impact of national banks is concentrated primarily in the manufacturing sector. These findings suggest that state free banking laws, encouraged by regulatory competition, significantly increased the growth of agricultural output and capital during this period.