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How good was the profitability of British railways, 1870–1912?

  • BRIAN MITCHELL
  • DAVID CHAMBERS
  • NICK CRAFTS

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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Article provided by Economic History Society in its journal The Economic History Review.

Volume (Year): 64 (2011)
Issue (Month): 3 (08)
Pages: 798-831

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Handle: RePEc:bla:ehsrev:v:64:y:2011:i:3:p:798-831
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  1. Grossman, Richard S., 2002. "New Indices Of British Equity Prices, 1870 1913," The Journal of Economic History, Cambridge University Press, vol. 62(01), pages 121-146, March.
  2. Mitchell, B. R., 1964. "The Coming of the Railway and United Kingdom Economic Growth," The Journal of Economic History, Cambridge University Press, vol. 24(03), pages 315-336, September.
  3. Fogel, Robert William, 1979. "Notes on the Social Saving Controversy," The Journal of Economic History, Cambridge University Press, vol. 39(01), pages 1-54, March.
  4. 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.
  5. Nicholas Crafts & Terence C. Mills & Abay Mulatu, 2005. "Total factor productivity growth on Britain's railways, 1852-1912: a reappraisal of the evidence," Economic History Working Papers 22553, London School of Economics and Political Science, Department of Economic History.
  6. William N. Goetzmann & Andrey Ukhov, 2005. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," NBER Working Papers 11266, National Bureau of Economic Research, Inc.
  7. Tim Leunig, 2005. "Time is money: a re-assessment of the passenger social savings from Victorian British railways," Economic History Working Papers 22551, London School of Economics and Political Science, Department of Economic History.
  8. 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.
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