[Miller and Modigliani (1961) show that in perfect and complete financial markets a firm's value is unaffected by its dividend policy. Much of the more recent research has demonstrated that dividend policy becomes important in the presence of taxation, asymmetric information, incomplete contracts, institutional constraints, and transaction costs. By examining the effects of dividend policies on 475 British firms existing between 1895 and 1905, and consequently operating in an environment of very low taxation with an absence of institutional constraints, we find strong support for asymmetric information theories of dividend policy, and little support for agency models.]

We investigate the impact of increasing bank concentration on bank loan contracts in a lightly regulated environment that allows us to abstract from possible confounding effects of regulation and focus on the “pure” effects of competition on bank lending. We study over 30,000 British bank loans over the period 1885 to 1925. Borrowers in counties with high bank concentration received smaller loans and posted more collateral than borrowers in other counties. In high concentration counties, the quality of loan applicants improved, suggesting that banks restricted credit, not that the quality of loan applicants had worsened.

In the UK, between 1955 and 1970, dual class shares quickly lost popularity without any regulatory intervention. The decline in the use of dual class shares was positively correlated with the relative valuations of one-share-one-vote and dual class firms, which in turn was related to media pessimism on the use of dual class shares. Following periods with high relative valuations of one-share-one-vote, one-share-one-vote firms exhibited lower returns than dual class firms suggesting that the latter were undervalued. These and other results suggest that investor demand may lead firms to abandon dual class shares.

Miller and Modigliani (1961) show that in perfect and complete financial markets a firm's value is unaffected by its dividend policy. Much of the more recent research has demonstrated that dividend policy becomes important in the presence of taxation, asymmetric information, incomplete contracts, institutional constraints, and transaction costs. By examining the effects of dividend policies on 475 British firms existing between 1895 and 1905, and consequently operating in an environment of very low taxation with an absence of institutional constraints, we find strong support for asymmetric information theories of dividend policy, and little support for agency models.

We study nine equity markets between 1900 and 1925 to provide an out-of-sample test of some major asset pricing anomalies during a period in which anomalies had not been documented. We find strong evidence of momentum in almost every market. We find no evidence of long-term reversals, which, coupled with the limited presence of institutional investors, suggests that underreaction should be considered as a key aspect of behavioral theories of momentum. We also find evidence for the size effect, betting-against-beta, and the outperformance of low volatility stocks, whereas we find mixed evidence of short-term reversal.

This article studies the relationship between credit provision and stock trading behavior. We collect every stock transaction of the three major British companies during the 1720 South Sea Bubble and link stock trading to margin loan positions with the Bank of England. We give insights in the selection of traders into the loan facility by comparing the trading behavior and realized returns of borrowers to other traders. We find that loan holders are more likely to buy following high returns and document strong underperformance of borrowers.

Economic theories posit conflicting hypotheses on how wealth inequality affects entrepre-neurial dynamism. We investigate the impact of wealth inequality on business dynamics by constructing local measures of household wealth inequality based on financial rents, home equity, and 1880 farmland. We then identify the effect of wealth inequality on entrepre-neurship by instrumenting it with land distribution under the 1862 Homestead Act. Wealth inequality decreases firm entry and exit, and the proportion of high-tech businesses across metropolitan statistical areas. Wealth inequality also lowers the supply of public goods, such as education. Growth in income per capita consequently lags.

We investigate the impact of increasing bank concentration on bank loan contracts in a lightly regulated environment that allows us to abstract from possible confounding effects of regulation and focus on the “pure” effects of competition on bank lending. We study over 30,000 British bank loans over the period 1885 to 1925. Borrowers in counties with high bank concentration received smaller loans and posted more collateral than borrowers in other counties. In high concentration counties, the quality of loan applicants improved, suggesting that banks restricted credit, not that the quality of loan applicants had worsened. Received February 4, 2016; editorial decision December 20, 2016 by Editor Philip Strahan.

We analyze how individual investors respond to inflation. We introduce a unique data set containing information on local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the German hyperinflation. We find that individual investors buy fewer (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. Moreover, we document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with individual investors suffering from money illusion. Alternative explanations, such as consumption needs, are unlikely to drive our results.

Do credit contractions trigger social unrest? To answer this question, we turn to a natural experiment from 1930s China, where the 1933 U.S. Silver Purchase program acts as a shock to bank lending. We assemble a hand-collected data set of loan contracts between banks and firms, labor unrest episodes, and underground Communist Party penetration. The Silver Purchase shock results in a severe credit contraction, and firms borrowing from banks with a larger exposure to it experience increased labor unrest and Communist Party penetration among their workers. These findings contribute to understanding the socio-political consequences of credit shocks.