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The value of banks’ political and business connections in the Russian industrialisation of the 1890s and the crisis of 1899-1902

No. 2018-11. QUCEH Working Paper Series, No. 2018-11. Queen’s University Belfast, 2020
Do personal connections matter for the performance of commercial banks in the period of economic development and financial stress? In the 1890s, the Russian Empire, when undergoing rapid state-led industrialisation, grew by foreign capital inflows into the national debt and by the state’s procurement of industrial output. In 1899, the inflow of foreign capital fell sharply, initiating a financial crisis. Using newly-collected historical data, I find that the banks which experienced greater distress during the crisis had more personal connections to heavy industrial companies, those that had been most-stimulated by state policies to expand production. These banks also had more personal ties to top government officials. In contrast, during the industrial development of the 1890s, banks’ personal connections to heavy industrial companies and top officials were positively related to bank performance.