Working Paper: NBER ID: w24431
Authors: Charles W. Calomiris; Elliot S.M. Oh
Abstract: We study factors influencing individuals’ decisions to purchase Citibank stock during the 1920s. Ownership was encouraged by proximity to New York and higher wealth. Lack of familiarity was also an important barrier. The establishment of Citibank branches within a U.S. county or a foreign country was associated with a large increase in share ownership in that location, ceteris paribus. Within the New York City metropolitan area, individual characteristics related to wealth, knowledge, and one’s influence within the New York City Business network increased the probability of becoming a Citibank shareholder. Business associates in the network were an important influence on purchase decisions. Connections with Citibank officers and directors, or with people who had such connections, increased the probability of buying Citibank shares. Connections with other Citibank shareholders also increased the probability of buying Citibank shares. Connections with officers and directors of other large New York banks reduced the probability of owning Citibank, presumably because it increased familiarity with a close substitute for Citibank shares. Network influence reflected more than the transmission of inside information; executives imitated other’s stock buying behavior, which provides evidence of the importance of familiarity for purchases. The role of some network influences, like other identifiable influences, became less important during the price boom of 1928-1929, perhaps reflecting the rising importance of other means of increasing familiarity during the price boom (i.e., media coverage).
Keywords: Citibank; familiarity bias; business networks; stock purchases; 1920s
JEL Codes: G02; G11; G21; N12; N22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased role of media coverage during the 1928-1929 price boom (E32) | Diminished influence of networks (D85) |
| Proximity to a Citibank branch (G21) | Increase in share ownership (G34) |
| Establishment of Citibank branches in a county or foreign country (G21) | Higher ownership rates (R21) |
| Wealth (D31) | Increase in likelihood of becoming a Citibank shareholder (G24) |
| Financial knowledge (G53) | Increase in likelihood of becoming a Citibank shareholder (G24) |
| Influence within the New York business network (D85) | Increase in likelihood of becoming a Citibank shareholder (G24) |
| Connections to Citibank officers and directors (G34) | Enhance probability of share purchases (G19) |
| Connections to officers and directors of competing banks (G34) | Decrease likelihood of owning Citibank shares (G32) |
| Network connections (D85) | Significantly affect purchasing behavior (F61) |