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Financial Dependence and Firm Survival in Interwar Britain

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  • David Chambers
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    Abstract

    Was 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 Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 377.

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    Date of creation: 01 Dec 2007
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    Handle: RePEc:oxf:wpaper:377

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    Keywords: IPOs; Survival; Regulation; Investment;

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    1. David Chambers & Elroy Dimson, 2009. "IPO Underpricing over the Very Long Run," Journal of Finance, American Finance Association, vol. 64(3), pages 1407-1443, 06.
    2. Julian Franks & Colin Mayer & Stefano Rossi, 2009. "Ownership: Evolution and Regulation," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4009-4056, October.
    3. James S. Foreman-Peck, 1985. "Seedcorn or Chaff? New Firm Formation and the Performance of the Interwar Economy," Economic History Review, Economic History Society, vol. 38(3), pages 402-422, 08.
    4. Paul A. Gompers & Josh Lerner, 2001. "The Really Long-Run Performance of Initial Public Offerings: The Pre-NASDAQ Evidence," NBER Working Papers 8505, National Bureau of Economic Research, Inc.
    5. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    6. David Strömberg, 2004. "Radio's Impact on Public Spending," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 189-221, February.
    7. Fama, Eugene F. & French, Kenneth R., 2004. "New lists: Fundamentals and survival rates," Journal of Financial Economics, Elsevier, vol. 73(2), pages 229-269, August.
    8. Corbett, Jenny & Jenkinson, Tim, 1997. "How Is Investment Financed? A Study of Germany, Japan, the United Kingdom and the United States," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(0), pages 69-93, Supplemen.
    9. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-24, January.
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