The Cost of Glass Steagall on Corporate Investment: Evidence from Bank, Trust Company, and Insurance Company Affiliations
Working Paper No. 97.02
Posted: 26 Mar 1998
Date Written: 1997
Abstract
This paper finds that the implementation of the Glass Steagall Act may have increased the cost for corporations of raising external funds for investment spending. Specifically, it detects significant differences in the way financial institutions (commercial banks, trust companies, and insurance companies) influenced corporate investment spending. Investment regressions for a sample of companies affiliated to a financial institution are estimated and compared to the regression results of a control sample. Prior to Glass-Steagall, affiliated companies do not display any sensitivity between investment spending and internal measures of liquidity, whereas the control sample does. After Glass-Steagall, bank and trust-affiliated companies display the same large sensitivity of investment spending to internal measures of liquidity as the control sample. This provides some empirical evidence for the hypothesis that corporate financing was adversely affected by the imposition of the Glass-Steagall Act.
JEL Classification: D92, G32
Suggested Citation: Suggested Citation