Financing the American Corporation: The Changing Menu of Financial Relationships
CHARLES W. CALOMIRIS
CARLOS D. RAMIREZ
The history of the financing of the American corporation can be described along many dimensions -- variation in the relative importance of particular contracting forms (e.g., debt vs. equity) as marginal sources of funds, changes in the use of retained earnings vs. external finance, shifts in the relative importance of lending from commercial banks or similar intermediaries (sometimes referred to as "insider" lending) vs. financing from public markets. Each of these potential measures of the historical evolution of corporate finance has been used by financial historians to address particular questions. For example, variation in the relative importance of debt, preferred stock, and common stock as sources of external finance can help gauge the effects of innovations in bankruptcy laws on corporate finance costs. Reductions in the role of banks in financing corporations, often induced by regulatory change, can help measure the importance of regulatory restrictions on banks for corporate finance costs. Changes in the relative cost of external finance through public markets can be related to institutional factors that reduce the costs of public securities offerings.
Our central point in this paper is that there is a single general historical pattern that lies behind each of these three measures of historical change in corporate finance (contracting form, reliance on funds from in