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Financial distress, corporate borrowing, and industrial decline: the Lancashire cotton spinning industry, 1918-38

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  • David Higgins
  • Steve Toms

Abstract

The analysis presented is based on a case study of Lancashire cotton textile firms. It traces their financial history through the sharp boom of 1919-20, and the sudden crisis that followed. Using a sample of representative companies it is shown that firms unwittingly adopted inappropriate financial structures that acted as the decisive constraint on the adoption of recovery strategies in the subsequent slump. The paper explains how the relationship between indebtedness and asset values prevented subsequent internal financial retrenchment, restructuring and re-equipment, and dictated the competitive processes within the industry. It is demonstrated that financial constraints were the decisive factor determining the feasibility of competitive strategies available to the industry's leaders.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Accounting History Review.

Volume (Year): 13 (2003)
Issue (Month): 2 ()
Pages: 207-232

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Handle: RePEc:taf:acbsfi:v:13:y:2003:i:2:p:207-232

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Related research

Keywords: cotton; textiles; financial structure; turnaround strategies;

References

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  1. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-55, January.
  2. Weingartner, H Martin, 1977. "Capital Rationing: n Authors in Search of a Plot," Journal of Finance, American Finance Association, vol. 32(5), pages 1403-31, December.
  3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  4. Sandberg, Lars G, 1969. "American Rings and English Mules: The Role of Economic Rationality," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 25-43, February.
  5. Berglof, Erik & von Thadden, Ernst-Ludwig, 1994. "Short-Term versus Long-Term Interests: Capital Structure with Multiple Investors," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1055-84, November.
  6. Maloney, Michael T & McCormick, Robert E & Mitchell, Mark L, 1993. "Managerial Decision Making and Capital Structure," The Journal of Business, University of Chicago Press, vol. 66(2), pages 189-217, April.
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