Asymmetric information and capital mobility in antebellum America

Abstract

AbstractThe New York legislature granted charters to 28 new banks in 1829. Over $5 million in capital was subscribed by 1745 individuals or entities. The average distance between investor and bank is less than 40 miles, and the average number of investors is 75 per bank, with ownership and control closely aligned. A gravity model fixed effects regression is estimated. Insiders, such as public officials and bank officers account for over one quarter of the invested capital. After accounting for information asymmetry, a strong home bias exists which suggests a high degree of capital immobility. The failure of Northern capital to invest in Southern manufacturing is readily explained by the picture of a thin and localized market dominated by political elite and specialized traders.