Changing Balance Sheet Relationships in the U.S. Manufacturing Sector, 1926-77

This paper documents trends in the sources and uses of funds, market valuations, and rates of return for a sample of U.S. manufacturing firms during the half -century ending in 1977. The major objective of the paper is to construct economic balance sheet relationships based on securities market valuations rather than on the more familiar book values used for accounting purposes. Among the more interesting long-term trends highlighted in the analysis is the finding that the widely recognized increase in debt in manufacturing firms' capitalization has come primarily at the expense of .preferred stock. A second interesting point is the contrast between the sharp fall in common equity values in 1929-32, which was entirely reversed by 1936, and the even sharper post-1968 decline which was not reversed by 1977 nor, for that matter, by 1981. This paper is an introduction to a more comprehensive study which will be part of the second stage of the Debt/Equity Research Project.

Changes in the Balance Sheet of the U.S. Manufacturing Sector, 1926-1977

This is a report on the results of a research project, sponsored by the NBER's Program on Financial Markets and Monetary Economics, which involves the collection and organization of income account and balance sheet data, at the firm level, for the years 1926-77. The primary data source for the study is Moody's Industrial Manual. Working at the firm level, it is possible to obtain accurate information on the market values of traded securities.This paper presents and discusses some of the aggregate characteristics of the dataset and also reports the results of estimating a simple portfolio model which attempts to explain changes in firm balance sheet flows for the periods 1927-35 and 1965-77.The data collected for the study, as well as software necessary to manage them efficiently, are available from the authors. An NBER Technical Paper will shortly be available to describe the dataset and software in detail.