Determinants of Railroad Capital Structure, 1830-1885

Daniel Schiffman
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Daniel Schiffman: Department of Economics, Bar Ilan University

No 2001-15, Working Papers from Bar-Ilan University, Department of Economics

Abstract: U.S. Railroads suffered repeated financial crises in the 19th and 20th Centuries. These crises were caused by a combination of high debt levels and strongly procyclical revenues and profits. Given the inherent instability of profits, why did railroads depend primarily on debt to finance their initial growth? I find that, over 1830-1885, railroads faced significant agency and control problems, which were partially mitigated by the use of debt. Around 1885, new developments reinforced the initial tendency towards debt-heavy capital structures.

Date: 2001-07
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