Fabio Braggion

Dividend Policies in an Unregulated Market: The London Stock Exchange 1895-1905

In perfect and complete financial markets Miller and Modigliani (1961) show that a firms value is unaffected by its dividend policy. Taxation, asymmetric information, incomplete contracts, institutional constraints, and transaction costs make dividend policy important. We examine the effects of dividend policies on 469 British firms between 1895 and 1905. These firms operated in an environment of very low taxation and an absence of institutional constraints. We find strong support for asymmetric information theories of dividend policy, and little support for agency models.

The Economic Benefits of Political Connections in Late Victorian Britain

The late-Victorian era was characteristed by especially close links between politicians and firms in the UK. Roughly half of all members of Parliament served as company directors, many as directors of multiple firms. We analyze 467 British companies over the period 1895 to 1904 to investigate the interaction of firms and politicians. We find that new-technology firms with politicians serving on their boards were more likely to issue equity finance and had higher Tobins Q. Our evidence suggests that causality runs from director-politicians to a firms performance, rather than in the opposite direction.

From Competition to Cartel: Bank Mergers in the U.K. 1885 to 1925

We study the effects of bank mergers and acquisitions in the U.K. from 1885 to 1925. The lack of a regulatory authority and the confidential nature of merger negotiations allows us to precisely measure the wealth effects of M&As in a laissez-faire environment. We find positive wealth effects for bidders (0.7%-1%) and targets (6.7%-8%) over the announcement month. When takeovers took place in a competitive environment wealth creation appears to be related to efficiency gains. As competition decreased, gains to shareholders appear to be related to increased oligopoly power. In a less competitive environment, banks tended to reduce the amount of loans and increase their holdings of safe marketable securities. Banks with higher charter value displayed higher capital ratios.

A Century of Firm-Bank Relationships: Why the Transition to Multiple Banking?

We study how relationships between firms and banks evolved between during the Twentieth century in Britain. We document and explain a remarkable transition from single to multiple firm-bank relationships during the last twenty years of the sample period. Larger, global, or transparent companies with greater needs for bank credit and specialized services are more likely to add a bank. Deregulation and intensifying competition in the banking sector during the 1970s spurred banks to supply credit and services through these multilateral arrangements. Firm size, geographical presence, leverage, and control determine whether a clearer bank, another British bank or a foreign bank is added.

Banking Sector Deregulation, Bank-Firm Relationships and Corporate Leverage

We study how firm-bank relationships and corporate financing evolved during the Twentieth century in Britain. We document a remarkable transition from single to multiple relationships. Transparent, larger, and global companies were more likely to add a bank, especially when located in more competitive local banking markets. Deregulation and intensifying competition in the banking sector during the 1970s spurred banks to supply credit through multilateral arrangements. Firms that added a bank following deregulation borrowed more than similar firms that did not add a bank, and their bank debt expanded while their trade credit and share issuance contracted.

Can Technology Undermine Macroprudential Regulation? Evidence from Peer-to-Peer Credit in China

We study whether and to what extent peer-to-peer (P2P) credit helps circumvent loan-to-value (LTV) caps, a key macroprudential tool to contain household leverage. We exploit the tightening of mortgage LTV caps in a number of cities in China in 2013 as our testing ground, in a difference-in-differences setting, and we base our tests on a novel, hand-collected database covering all lending transactions at RenrenDai, a leading Chinese P2P credit platform. P2P loans increase at the cities affected by the LTV cap tightening relative to the control cities, consistent with borrowers tapping P2P credit to circumvent the regulation. The granularity of our data allows us to separate credit demand from credit supply effects, with a fixed effects strategy. Our results also indicate that P2P lenders do not adjust their pricing and screening to the influx of new borrowers after 2013, despite the fact that their loans ex post have higher delinquency and default rates. Symmetric effects are associated with a loosening of mortgage LTV caps in 2015. Our test provides empirical evidence on the capacity of P2P credit to undermine LTV caps. More broadly, our analysis informs the debate on the challenges posed by the interaction between FinTech and credit regulation.We study whether, and to what extent, peer-to-peer (P2P) lending creates a channel to elude regulation preventing asset price run-ups and limiting household leverage. We rely on a novel, hand-collected database, including detailed information on all lending transactions at Renrendai, a leading Chinese P2P lending company. We exploit a policy intervention in the market for real estate mortgages in a number of major Chinese cities, which increases the demand for P2P lending. We analyze P2P lending outcomes around the policy intervention, comparing affected and un-affected cities in a difference-in-differences setting. Our test provides clean empirical evidence on the capacity of P2P lending to undermine regulation in the credit market, and to potentially lead to excessive household debt. More broadly, our analysis informs the ongoing debate on FinTech and the regulatory challenges posed by the disintermediation of financial services. JEL codes: G23; G01; G18.

Nothing Special About Banks: Competition and Bank Lending in Britain, 1885-1925

We investigate the impact of increasing bank concentration on bank loan contracts in a lightly regulated environment. This environment allows us to abstract from possible confounding effects of regulation to focus on the “pure�? effects of competition on bank lending. We study over 30,000 British bank loans over the period 1885 to 1925. Borrowers in counties with high bank concentration received smaller loans and posted more collateral than borrowers in low concentration counties. In high concentration counties, the quality of loan applicants had improved, which suggests that banks restricted credit, rather than that the quality of loan applicants had worsened.

Household Inequality, Entrepreneurial Dynamism and Corporate Financing

Economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism. To empirically investigate its impact, we construct local measures of household wealth inequality based on financial rents, home equity, and 1880 farmland. We identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 Homestead Act or US states’ removal of “death taxes”. Wealth inequality decreases firm entry and exit, and the proportion of high-tech businesses across metropolitan statistical areas. There is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary. Income per capita consequently grows more slowly.

Changing corporate governance norms: Evidence from dual class shares in the UK☆

In the U.K., between 1955 and 1970, dual class shares quickly lost popularity without any regulatory intervention. The decline in the use of dual class shares was positively correlated with the relative valuations of one-share-one-vote and dual class firms, which in turn were related to media pessimism on the use of dual class shares. Following periods with high relative valuations of one-share-one-vote, one-share-one-vote firms exhibited lower returns than dual class firms suggesting that the latter were undervalued. These and other results suggest that investor demand may lead firms to abandon dual class shares.

Changing Corporate Governance Norms: Evidence from the Dismissal of Dual Class Shares in the U.K.

In the U.K., between 1955 and 1970, dual class shares quickly lost popularity without any regulatory intervention. The decline in the use of dual class shares was positively correlated with the relative valuations of one-share-one-vote and dual class firms, which in turn were related to media pessimism on the use of dual class shares. Following periods with high relative valuations of one-share-one-vote, one-share-one-vote firms exhibited lower returns than dual class firms suggesting that the latter were undervalued. These and other results suggest that investor demand may lead firms to abandon dual class shares.