Preliminary Draft. The Panic of 1907: JP Morgan, Trust Companies, and the Impact of the Financial Crisis

The outbreak of the Panic of 1907 occurred following a series of scandalous revelations about the investments of some prominent New York financiers, resulting in widespread runs on trust companies throughout New York City. The connections between the trust companies that came under severe strain during the crisis, and their client firms, may have transmitted the financial crisis to nonfinancial companies. Using newly collected data, this paper investigates whether corporations with close ties to trust companies were differentially affected during the panic. The results imply that firms with close ties to trust companies that faced runs performed worse in the years following 1907. The results also highlight the important role of J.P. Morgan during the crisis and its aftermath.