A. J. Arnold

Financial reporting in the context of crisis: reconsidering the impact of the 'mania' on early railway accounting

The patterns of change in the financial reporting practices of the early railway companies, and their causes, are important aspects of the evolution of accounting practice more generally. They have accordingly been widely discussed in the literature, although the views expressed have rarely been supported by reference to any very substantial or systematically derived bodies of empirical evidence. One of the most interesting and important suggestions in this literature is the claim that the early UK railway companies voluntarily made both quantitative and qualitative changes to their published accounting statements, in response to a crisis in shareholder confidence in the second half of the 1840s, consequent upon the collapse of the railway mania of 1845–47. The quantitative response involved the disclosure of far more information and the qualitative led to changes in the conceptual basis of reporting, from a cash to an accruals basis, changes that met with the satisfaction of the shareholders concerned and were important parts of the gradual evolution of financial reporting. The paper undertakes a systematic analysis of the financial accounting practices of the major early railway companies from 1840 until 1855. The mapping of the variety of such practices, and their changes over time, enable a re-examination of these important claims concerning the nature of the financial reporting response to one of its earliest crises.

Rates of Return, Concentration Levels and Strategic Change in the British Railway Industry, 1830-1912

This article presents new data on rates of return for different sectors of the railway industry and on levels of industrial concentration across the period from 1830 until shortly before the start of the First World War and considers their implications for existing views on strategic change in the industry. The authors first identify the main characteristics of the pre-First World War railway industry in Britain and then examine governmental regulation and competition policies, as they affected that industry. The following two sections examine the issue of industrial concentration and its linkages with profitability; new findings are presented on changes in levels of industrial concentration and rates of return for different sectors of the industry. These focus on the period from 1830, when scheduled passenger services began on the Liverpool & Manchester Line, until shortly before the First World War. The authors conclude that the period of 1870 to 1912 was one of structural stasis in which the legitimate interests of those who had funded the railways were progressively abandoned in favor of the interests of their trader/customers and society at large.

‘A paradise for profiteers’? The importance and treatment of profits during the First World War

When the First World War started, the British government adopted a policy of ‘business as usual’. This came under pressure as a result of both military difficulties and public concerns over ‘profiteering’, leading to discussions between the government and interest groups and the ‘Treasury agreement’ in 1915. The agreement paved the way for the transition to a ‘total war economy’ that was central to the war effort. This paper examines the process that raised industrial profit levels to such political importance during the war and the ways in which profits were treated by the government during and immediately after the war. Corporate secrecy, suspicions that the state was less than even-handed in its dealings with capital and labour, and individual instances of high profits increased public concern, but did not establish the true levels of profit making. The study reviews the available information on profits and also provides new data on the distribution of those profits across a number of major industrial groups in order to provide a more definitive perspective on the extent to which the business sector was or was not able to ‘profiteer’ during the First World War.

Veritable Gold Mines Before the Arrival of Railway Competition: But did Dividends Signal Rates of Return in the English Canal Industry?

Dividends can provide a tangible signal of earnings, but this function depends upon characteristics of financial reporting that were not always present in early financial capitalism. Although eighteenth-century English canal companies offered low-risk securitized capital approved by Parliament and were important to the development of financial capitalism, little is known about the economic state of the canal industry, beyond observed dividend levels. This article estimates rates of return on equity for a set of major English canals, but shows that their financial reporting under-represented equity inputs so that dividend rates did not reliably signal operating returns or equity-based rates of return.

Going 'to paradise by way of Kensal Green': A most unfit subject for trading profit?

Since the Reformation, the established Church had monopolised the English burial trade. In London, in the 1830s, burial conditions posed a serious threat to public health and a number of limited liability companies were licensed by Parliament to provide new facilities for the interment of the dead on the edges of the city, before the main responsibility was then transferred to local government. The paper examines the changes in government thinking that lay behind these policy shifts and explains why private sector capitalists were unable to meet the various expectations of customers in the London burial market, its own stakeholders and society more generally.

'A vast aggregate of avaricious and flagitious jobbing'? George Hudson and the evolution of early notions of directorial responsibility

The literature suggests that shareholders in the early railway companies were highly dependent upon the honesty and competence of their directors, that there was extensive scope for abuse and that numerous frauds were perpetrated, particularly during the railway mania of 1845–7. George Hudsons fraudulent activities are widely referred to, although the literature is, in general, more concerned with Hudsons manipulations of company accounts than with his misuse of the assets he was able to control as an agent of shareholder interests. At the time, however, Hudsons acts of self-enrichment and his defence of personal responsibility were as important as his accounting manipulations, not least because they posed an important and highly publicized challenge to tentatively formed notions of how directors should act. This paper concentrates on Hudsons dealings with and on behalf of his four major railway companies, analyses his personal transactions and then considers the influence of Hudsons personal frauds and ideas of personal responsibility on the evolution of early, and rather poorly formed, legal conceptions of directorial responsibility.

Financial capitalism, incorporation and the emergence of financial reporting information

Purpose - Changes in financial reporting information were an important part of the British transition from feudalism to capitalism, with statements showing cash surpluses or deficits being gradually superseded by income statements and balance sheets. The existing literature does not satisfactorily explain the (considerable) variations in the pattern of change in the early part of the transition, when information provision was largely determined by Parliamentary processes, and this paper aims to look to new evidence to strengthen and modify the existing theorisations. Design/methodology/approach - The research design is to discuss and relate existing theories regarding the emergence of financial reporting information to newly discovered evidence on a substantial set of corporate formations between 1766 and 1840, during the early stages of financial (or managerial) capitalism. Findings - Requirements to present accounts to shareholders were almost unknown before 1800 and became common only from the 1820s, usually in the form of (cash-based) receipts and payments accounts, which enabled investors to determine the legitimacy of the dividend payments and would have enabled them to calculate a cash-based version of the rate of return. Originality/value - The paper provides new evidence on the patterns of company development and of corporate financial reporting across the formative years of financial capitalism.

'Veritable gold mines before the arrival of railway competition': But did dividends signal rates of return in the English canal industry?

Dividends can provide a tangible signal of earnings, but this function depends upon characteristics of financial reporting that were not always present in early financial capitalism. Although eighteenth-century English canal companies offered low-risk securitized capital approved by Parliament and were important to the development of financial capitalism, little is known about the economic state of the canal industry, beyond observed dividend levels. This article estimates rates of return on equity for a set of major English canals, but shows that their financial reporting under-represented equity inputs so that dividend rates did not reliably signal operating returns or equity-based rates of return.

'Out of light a little profit'? Returns to capital at Bryant and May, 1884-1927

The historical literature on Bryant and May, market leaders for many years in the English match trade, is rich and interesting although it contains little on the connections between labour and technology-related managerial practices and the economic returns that they engendered. This is surprising given the importance of profit considerations to business behaviour in general and to Bryant and Mays functioning in particular. This paper accordingly examines the connections between the firms approach to technological innovation and labour relations and the financial returns it was able to generate and distribute to its owners across the period 1884 to 1927.

Can macro-economic sources be used to define UK business performance, 1855–1914?

The measurement of business performance addresses issues central to business history and this paper examines the evidence on rates of return for UK risk-bearing capital across the period 1855–1914. Existing series, based on the archival records of individual companies and on market data, provide results that are relatively reliable, if limited in scope. The national income accounting framework, in conjunction with capital stock measurements, instead offers the potential to identify a comprehensive series, although one subject to a number of valuation assumptions. In this paper, such a new series is provided and evaluated.