"Rethinking Corporate Finance Fables: Did the US Lag Europe before 1914?"

Hannah, Leslie

October 2015

In 1914 the New York Stock Exchange (NYSE) was only a modestly‐sized equity market (considering it served what had for decades been the world’s largest economy), but those deducing that overseas securities markets led the US miss the (non‐NYSE) majority of US‐quoted equity and the unusually high leverage of US corporations. As contemporaries understood, US corporate securities (especially bonds) had substantially increased in the decades before 1914 and those quoted nationwide naturally exceeded those of the smaller economies of France, Britain or Germany in absolute terms. A comparison of corporate finance in the four leading industrial economies ‐ across the full spectrum of corporations and their securities ‐ suggests conditional convergence on high ratios of stock exchange financing to GDP, led by the Anglosphere, but differently articulated in ways a) not captured by standard revealed preference modelling and b) with uncertain qualitative effects.