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Wall Street's First Corporate Governance Crisis: The Panic of 1826

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  • Eric Hilt

Abstract

In July of 1826, several prominent Wall Street firms abruptly went bankrupt, amid scandalous revelations of fraudulent financial practices by their management. Although mostly forgotten today, these events represented a watershed in the early development of the corporation laws and investor protections governing Wall Street: in the aftermath of the scandals, New York State enacted an extensive package of legislation designed to protect the interests of investors. These statutes were some of the the very first of their kind, and had a lasting influence. This paper analyzes the causes of the failures, and the evolution of the law in response. The analysis highlights the critical role played by scandal-driven legislation in the evolution of investor protections and financial regulations.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14892.

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Date of creation: Apr 2009
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Handle: RePEc:nbr:nberwo:14892

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  1. Kerry A. Odell & Marc D. Weidenmier, 2002. "Real Shock, Monetary Aftershock: The San Francisco Earthquake and the Panic of 1907," NBER Working Papers 9176, National Bureau of Economic Research, Inc.
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  6. Gennaioli, Nicola & Shleifer, Andrei, 2007. "The Evolution of Common Law," Scholarly Articles 3451305, Harvard University Department of Economics.
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  8. Peter L. Rousseau & Richard Sylla, 2000. "Emerging Financial Markets and Early U.S. Growth," Econometric Society World Congress 2000 Contributed Papers 1254, Econometric Society.
  9. Hilt, Eric, 2008. "When did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 68(03), pages 645-685, September.
  10. Ellis W. Tallman & Jon R. Moen, 1990. "Lessons from the panic of 1907," Economic Review, Federal Reserve Bank of Atlanta, issue May, pages 2-13.
  11. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  12. Moen, Jon & Tallman, Ellis W., 1992. "The Bank Panic of 1907: The Role of Trust Companies," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 611-630, September.
  13. Knodell, Jane, 2006. "Rethinking the Jacksonian Economy: The Impact of the 1832 Bank Veto on Commercial Banking," The Journal of Economic History, Cambridge University Press, vol. 66(03), pages 541-574, September.
  14. Musacchio, Aldo, 2008. "Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil," The Journal of Economic History, Cambridge University Press, vol. 68(01), pages 80-108, March.
  15. Larry Neal, 1998. "The financial crisis of 1825 and the restructuring of the British financial system," Review, Federal Reserve Bank of St. Louis, issue May, pages 53-76.
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Cited by:
  1. Muravyev, Alexander, 2009. "Investor Protection and the Value of Shares: Evidence from Statutory Rules Governing Variations of Shareholders' Class Rights in Russia," IZA Discussion Papers 4669, Institute for the Study of Labor (IZA).
  2. Charles Calomiris, 2009. "Banking Crises and the Rules of the Game," NBER Working Papers 15403, National Bureau of Economic Research, Inc.
  3. Muravyev, Alexander, 2009. "Investor protection and share prices: Evidence from statutory rules governing variations of shareholders’ class rights in Russia," MPRA Paper 13678, University Library of Munich, Germany.
  4. Berezinets, Irina & Ilina, Yulia & Muravyev, Alexander, 2011. "CEO and Board Characteristics as Determinants of Private Benefits of Control: Evidence from the Russian Stock Exchange," IZA Discussion Papers 6256, Institute for the Study of Labor (IZA).

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