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How Good was the Profitability of British Railways, 1870-1912?

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Author Info
Brian Mitchell (Cambridge University)
David Chambers (Oxford University)
Nicholas Crafts (Warwick University)

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Abstract

This paper provides new estimates of the return on capital employed (ROCE) for major British railway companies. It shows that ROCE was generally below the cost of capital after the mid-1870s and fell till the turn of the century. Addressing issues of cost inefficiency could have restored ROCE to an adequate level in the late 1890s but not in 1910. Declines in ROCE hit share prices and returns to shareholders were negative after 1897. Optimal portfolio analysis shows that, whilst railway securities would have had a substantial weight prior to this date, investors would have been justified in rushing to the exits thereafter.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/publications/twerp_859a.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 859.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:859

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  1. William N. Goetzmann & Andrey D. Ukhov, 2006. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," Review of Finance, Oxford University Press for European Finance Association, vol. 10(2), pages 261-300. [Downloadable!] (restricted)
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  2. McCloskey, Donald N. & Sandberg, Lars G., 1971. "From damnation to redemption: Judgments on the late victorian entrepreneur," Explorations in Economic History, Elsevier, vol. 9(1), pages 89-108. [Downloadable!] (restricted)
  3. Nicholas Crafts & Timothy Leunig & Abay Mulatu, 2008. "Were British railway companies well managed in the early twentieth century? -super-1," Economic History Review, Economic History Society, vol. 61(4), pages 842-866, November. [Downloadable!] (restricted)
  4. Crafts, Nicholas & Mills, Terence C. & Mulatu, Abay, 2007. "Total factor productivity growth on Britain's railways, 1852-1912: A reappraisal of the evidence," Explorations in Economic History, Elsevier, vol. 44(4), pages 608-634, October. [Downloadable!] (restricted)
  5. Leunig, Timothy, 2006. "Time is Money: A Re-Assessment of the Passenger Social Savings from Victorian British Railways," The Journal of Economic History, Cambridge University Press, vol. 66(03), pages 635-673, September. [Downloadable!]
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