Did J. P. Morgan's Men Add Liquidity? Corporate Investment, Cash Flow, and Financial Structure at the Turn of the Twentieth Century



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    • Ramirez is from the Department of Economics, George Mason University. I am very grateful to Brad De Long who offered valuable insights, comments, and criticisms. I also greatly appreciate comments by David Brown, Charles Calomiris, Lance Davis, Claudia Goldin, Anil Kashyap, David Landes, Ben Polak, Dan Raff, David Scharfstein, Andrei Shleifer, Richard Sylla, René Stulz, Ling Hui Tan, Peter Temin, Peter Tufano, Jeffrey Williamson, an anonymous referee, participants at the 1992 NBER Summer Institute, seminar participants at the Federal Reserve Board, the Rutgers University School of Business, University of Florida College of Business Administration, as well as participants at Harvard University's Economic History Tea. All remaining errors are my own.


This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal-agent and asymmetric information problems. I estimate and compare investment regression equations for a sample of Morgan-affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the House of Morgan were liquidity constrained.