Shadows on Main Street: Mapping America's Financial Architecture from the Yellow Pages of the 20th Century

40 Pages Posted: 1 Dec 2023

See all articles by Taylor A. Begley

Taylor A. Begley

University of Kentucky

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business

Virginia Traweek

Texas Christian University

Date Written: November 27, 2023

Abstract

We construct a novel and comprehensive database of the branches of all financial services providers, including banks and nonbank financial institutions, at the county level over 1920-2000 from Yellow Pages published in Indiana, Michigan, and Ohio. We find that about one-third of these branches are shadow banks, i.e., non-regulated entities, and that there is strong county-specific persistence in both the number of branches and the share of shadow banks over time. We examine the statistical and economic implications of these findings for extant empirical literature on the effect of finance on real outcomes, which mostly focuses on easily-measured regulated institutions. Ignoring shadow banks in these analyses creates a non-classical measurement error since shadow banks evolve as a complement to regulated institutions. Using banks alone as a proxy for financial development can understate the true effect by as much as 50% or overstate the true effect by as much as 80%, depending on the empirical application. Routine empirical choices such as whether to use the number of branches or their log-transformed values in the regression analysis create large differences in the direction and extent of bias. We provide suggestions for correcting for these biases in future empirical studies.

Keywords: Banking, Shadow Banks, Financial Intermediation, Measurement Error

JEL Classification: G21, G23, L1

Suggested Citation

Begley, Taylor A. and Purnanandam, Amiyatosh and Traweek, Virginia, Shadows on Main Street: Mapping America's Financial Architecture from the Yellow Pages of the 20th Century (November 27, 2023). Available at SSRN: https://ssrn.com/abstract=4639955 or http://dx.doi.org/10.2139/ssrn.4639955

Taylor A. Begley (Contact Author)

University of Kentucky ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.taylorbegley.com

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Virginia Traweek

Texas Christian University ( email )

Fort Worth, TX 76129
United States

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