Managers, Firms and (Secret) Social Networks: The Economics of Freemasonry

This paper studies the relationships between managers a¢ liations with Freema- sonry and companies' performance. Using a unique data set of 410 companies quoted on the London Stock Exchange between 1895 and 1902, I find that Masonic managers were associated with greater access to credit in small and young companies whose se- curities where traded over the counter. These companies earned higher profits, but the effect is not statistically significant. On the other hand, large publicly quoted corpora- tions that were managed by Freemasons did not obtain greater access to credit; they had lower profiys and lower Tobin's Q. These findings help to understand how social networks are related to companies' performances. Although social networks help to resolve agency problems between lenders and borrowers in firms that have difficulties in obtaining debt finance, in larger publicly quoted companies they are associated with worse agency conflicts between managers and shareholders and with worse economic performance.Freemasons;Social Networks;Access to Credit

The Economic Benefits of Political Connections in Late Victorian Britain

The late-Victorian era was characteristed by especially close links between politicians and firms in the UK. Roughly half of all members of Parliament served as company directors, many as directors of multiple firms. We analyze 467 British companies over the period 1895 to 1904 to investigate the interaction of firms and politicians. We find that new-technology firms with politicians serving on their boards were more likely to issue equity finance and had higher Tobin's Q. Our evidence suggests that causality runs from director-politicians to a firm's performance, rather than in the opposite direction.Political Connections;Second Industrial Revolution;External Finance

Dividend Policies in an Unregulated Market: The London Stock Exchange 1895-1905

We examine the e¤ects of dividend policies on 469 British firms between 1895 and 1905. These firms operated in an environment of very low taxation and an absence of institutional constraints. We find strong support for asymmetric information/signaling theories of dividend policy, and little support for agency models. Our results suggest that dividends can signal information from managers to shareholders, even if dividend payments incur only very low taxes. However, taxes appear to be necessary to allow dividend policies to resolve agency problems between managers and investors.Dividend Policy;London Stock Exchange

How Insiders Traded before Rules

Abstract: U.K. company insiders, such as directors, were legally allowed to trade in the shares of their own companies up until the Companies Act of 1980. We investigate the trading behaviour of directors over the period 1893 to 1907 in the U.K. Although insider trading was profitable, we find relatively few instances of directors who exploited their informational advantage.Corporate Governance;Insider Trading;London Stock Exchange

Optimal Monetary Policy in a 'Sudden Stop'

In the wake of the 1997-98 financial crises, interest rates in Asia were raised immediately, and then reduced sharply. We describe an environment in which this is the optimal monetary policy. The optimality of the immediate rise in the interest rate is an example of the theory of the second best: although high interest rates introduce an inefficiency wedge into the labor market, they are nevertheless welfare improving because they mitigate distortions due to binding collateral constraints. Over time, as various real frictions wear off and the collateral constraint is less binding, the familiar Friedman forces dominate, and interest rates are optimally set as low as possible.

Beyond balance sheet minimum requirements

Corporate disclosure consists of mandatory periodic disclosure and voluntary disclosure. Both contribute to the reduction of information asymmetries arising between the company and the current and/or potential investors, and between the company and other users. The compulsory information is prescribed by current applicable regulations and accounting standards, and refers to periodic financial reports. Further, companies have at their disposal several channels to communicate additional information to the public on a voluntary basis (e.g. conference calls, road shows and press releases). Concerning mandatory disclosure, the balance sheet is one of the fundamental financial statements for all companies, including firms undertaking Initial Public Offerings (IPOs). IPO prospectuses are the first means for firms willing to quote on capital markets to disclose financial information to the public. Several determinants may influence the level of disclosure, measured in terms of disclosed balance sheet items, in IPO prospectuses. Moreover, the extent of disclosure may affect investors’ ability to value the IPO. Based on a sample of 683 IPOs completed between 2003 and 2012, the results suggest that post-crisis firms and companies with a greater time distance between S-1 and 424 filings present a greater level of detailed information concerning their liabilities. In addition, firms operating in the ‘Oil, Gas and Coal’ industry present a greater disclosure level compared to the other industry types. Further analyses indicate that firstday returns are negatively affected by noncurrent assets and positively influenced by noncurrent liabilities.ope