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Reputation Formation in Early Bank Note Markets

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  • Gorton, Gary

Abstract

Two hypotheses concerning firms issuing debt for the first time are tested. The first is that new firms' debt is discounted more heavily by lenders compared to otherwise identical firms that have 'reputations' in the form of credit histories. The second hypothesis is that, prior to the establishment of a reputation, new firms issuing debt are monitored more intensely. The sample studied consists of new banks issuing bank notes for the first time during the American Free Banking Era (1838-60). The results explain why the pre-Civil War system of private money issuance by banks was not plagued by problems of overissuance ('wildcat banking'). Copyright 1996 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 104 (1996)
Issue (Month): 2 (April)
Pages: 346-97
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Handle: RePEc:ucp:jpolec:v:104:y:1996:i:2:p:346-97

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  1. Reflections on a Year of Crisis
    by Barry Ritholtz in the big picture on 2009-08-21 14:30:12
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Cited by:
  1. Dwyer Jr., Gerald P. & Samartín, Margarita, 2009. "Why do banks promise to pay par on demand?," Journal of Financial Stability, Elsevier, vol. 5(2), pages 147-169, June.
  2. Jeffery W. Gunther & Linda M. Hooks & Kenneth J. Robinson, 1997. "Adverse selection and competing deposit insurance systems in pre-depression Texas," Financial Industry Studies Working Paper 97-4, Federal Reserve Bank of Dallas.
  3. Peter L. Rousseau, 2009. "Monetary Policy and the Dollar," NBER Working Papers 14993, National Bureau of Economic Research, Inc.
  4. R. Alton Gilbert & Andrew P. Meyer & Mark D. Vaughan, 2006. "Can feedback from the jumbo CD market improve bank surveillance?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 135-175.
  5. Charles M. Kahn & William Roberds, 1998. "Demandable debt as a means of payment: banknotes versus checks," Working Paper 98-5, Federal Reserve Bank of Atlanta.
  6. Timothy Guinnane, 2001. "Delegated Monitors, Large and Small: The Development of Germany’s Banking System, 1800-1914," CESifo Working Paper Series 565, CESifo Group Munich.
  7. William Roberds, 1998. "The impact of fraud on new methods of retail payment," Economic Review, Federal Reserve Bank of Atlanta, issue Q 1, pages 42-52.
  8. Stephen Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta.
  9. Fishman, Arthur & Finkelshtain, Israel & Simhon, Avi & Yacouel, Nira, 2008. "The Economics of Collective Brands," Discussion Papers 46056, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
  10. Gerald P. Dwyer, Jr. & R.W. Hafer, 2001. "Bank failures in banking panics: Risky banks or road kill?," Working Paper 2001-13, Federal Reserve Bank of Atlanta.
  11. Quagrainie, Kwamena K. & McCluskey, Jill J. & Loureiro, Maria L., 2001. "Reputation And State Commodity Promotion: The Case Of Washington Apples," 2001 Annual meeting, August 5-8, Chicago, IL 20592, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  12. Richard C.K. Burdekin & Marc D. Weidenmier, . "Circulating Interest-Bearing Currency: An Arkansan Experiment, 1861-1863," Claremont Colleges Working Papers 2003-04, Claremont Colleges.
  13. Richard C.K. Burdekin & Marc D. Weidenmier, . "Interest-Bearing Currency and Legal Restrictions Theory: Lessons from the Southern Confederacy," Claremont Colleges Working Papers 1999-14, Claremont Colleges.
  14. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany.

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