Financial Dependence and Firm Survival in Interwar Britain
AbstractWas the London Stock Exchange (LSE) little more than a Dickensian den of speculation, or did it make a contribution to industrial development in Interwar Britain?� The interwar stock market laboured under problems of weak disclosure, inadequate investor protection and ineffective underwriting.� New manufacturing industries were the most vulnerable to resulting asymmetric information problems.� Drawing on a new database of IPOs on the London Stock Exchange between 1919 and 1938, I conclude that new manufacturing firms were finance-constrained.� Consistent with the Rajan-Zingales financial dependence hypothesis, this result reflects the weak interwar institutional environment.� The disastrous IPO survival rates of the late 1920s provide further evidence of this weak environment.� Yet, when issue activity rebounded strongly in the following decade, a dramatic improvement in survival ensued, due, in part, to the efforts of the LSE.� This was an early example of the "light touch" regulatory approach for which London has subsequently become renowned.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 377.
Date of creation: 01 Dec 2007
Date of revision:
IPOs; Survival; Regulation; Investment;
Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- N2 - Economic History - - Financial Markets and Institutions
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-ENT-2008-03-25 (Entrepreneurship)
- NEP-HIS-2008-03-25 (Business, Economic & Financial History)
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