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Shorting the Future: Capital Markets and the Launch of the British Electrical Industry, 1880-1892

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  • William Kennedy

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  • Robert Delargy
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    Abstract

    Drawing on a comprehensive data set consisting of dividend payments, security prices, and stock exchange disclosures, this paper argues that, contrary to common interpretation, potentially damaging government regulations imposed in 1882 cannot explain the retarded development of the nascent British electrical industry in its first decade. Instead, as informed opinion at the time maintained, wildly inflated expectations had by the spring of 1882 driven the publicly-traded security prices of putative electrical enterprises to manifestly unsustainable levels. When initial demand and operating profits failed to meet these grossly extravagant expectations, �irrational exuberance� quickly turned to equally undisciplined pessimism in a classic case of stock market boom and bust - with predictable consequences, most notably a collapse of subsequent investment and development at a time of great technological ferment, when durable early-mover advantages were being established among electrical manufacturers globally. This debilitating sequence of market boom and bust was further exacerbated by the fact that during the brief boom surprisingly little money was invested in the promising technologies that were available. Technological rather than regulatory risk was the dominant factor in the 1882 electrical debacle, with long lasting consequences.

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    Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 701.

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    Date of creation: 22 Nov 2011
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    Handle: RePEc:esx:essedp:701

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    1. Paul David & Gavin Wright, 1999. "General Purpose Technologies and Surges in Productivity: Historical Reflections on the Future of the ICT Revolution," Economics Series Working Papers 1999-W31, University of Oxford, Department of Economics.
    2. Meyer, David R., 2007. "Financing Innovation in the United States, 1870 to the Present. Edited by Naomi R. Lamoreaux and Kenneth L. Sokoloff. Cambridge, MA: MIT Press, 2007. Pp. xii, 503. $45," The Journal of Economic History, Cambridge University Press, vol. 67(04), pages 1083-1085, December.
    3. Naomi R. Lamoreaux & Kenneth L. Sokoloff (ed.), 2007. "Financing Innovation in the United States, 1870 to Present," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262122898, December.
    4. repec:cup:cbooks:9780521584401 is not listed on IDEAS
    5. Gareth Campbell & John D. Turner, 2011. "Substitutes for legal protection: corporate governance and dividends in Victorian Britain," Economic History Review, Economic History Society, vol. 64(2), pages 571-597, 05.
    6. William J. Hausman & Mira Wilkins & John L. Neufeld, 2007. "Global Electrification. Multinational Enterprise and International Finance in the History of Light and Power, 1880s-1914," Revue économique, Presses de Sciences-Po, vol. 58(1), pages 173-190.
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