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Paying back to borrow more: Reputation and bank credit access in early America

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  • Wang, Ta-Chen

Abstract

The birth of commercial banking in New England after the American Revolution provides an important case to examine banking development under asymmetric information. Similar to credit markets in developing countries today, bank borrowers of early America usually had little or no collateral. This paper uses a unique data set based on loans between 1803 and 1833 for Plymouth Bank to examine bank lending policies in the absence of collateral. Empirical evidence suggests that borrowers with little collateral established their credit-worthiness through repeated interaction with banks.

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Bibliographic Info

Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 45 (2008)
Issue (Month): 4 (September)
Pages: 477-488

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Handle: RePEc:eee:exehis:v:45:y:2008:i:4:p:477-488

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Web page: http://www.elsevier.com/locate/inca/622830

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Keywords: Banking Collateral Reputation Lending;

References

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  1. Martinelli, Cesar, 1997. "Small firms, borrowing constraints, and reputation," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 91-105, May.
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  8. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
  9. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
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  12. Davis, Lance E., 1960. "The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing 1840–1860," The Journal of Economic History, Cambridge University Press, vol. 20(01), pages 1-30, March.
  13. Bodenhorn, Howard, 2007. "Usury ceilings and bank lending behavior: Evidence from nineteenth century New York," Explorations in Economic History, Elsevier, vol. 44(2), pages 179-202, April.
  14. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-62, August.
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  16. Adams, Donald R., 1972. "The Bank of Stephen Girard, 1812–1831," The Journal of Economic History, Cambridge University Press, vol. 32(04), pages 841-868, December.
  17. Howard Bodenhorn, 2001. "Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America," NBER Historical Working Papers 0137, National Bureau of Economic Research, Inc.
  18. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
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