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Financial distress, corporate borrowing, and industrial decline: the Lancashire cotton spinning industry, 1918-38


  • David Higgins
  • Steve Toms


The analysis presented is based on a case study of Lancashire cotton textile firms. It traces their financial history through the sharp boom of 1919-20, and the sudden crisis that followed. Using a sample of representative companies it is shown that firms unwittingly adopted inappropriate financial structures that acted as the decisive constraint on the adoption of recovery strategies in the subsequent slump. The paper explains how the relationship between indebtedness and asset values prevented subsequent internal financial retrenchment, restructuring and re-equipment, and dictated the competitive processes within the industry. It is demonstrated that financial constraints were the decisive factor determining the feasibility of competitive strategies available to the industry's leaders.

Suggested Citation

  • David Higgins & Steve Toms, 2003. "Financial distress, corporate borrowing, and industrial decline: the Lancashire cotton spinning industry, 1918-38," Accounting History Review, Taylor & Francis Journals, vol. 13(2), pages 207-232.
  • Handle: RePEc:taf:acbsfi:v:13:y:2003:i:2:p:207-232 DOI: 10.1080/0958520032000084996

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    References listed on IDEAS

    1. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    2. Weingartner, H Martin, 1977. "Capital Rationing: n Authors in Search of a Plot," Journal of Finance, American Finance Association, vol. 32(5), pages 1403-1431, December.
    3. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-255, January.
    4. Erik Berglöf & Ernst-Ludwig von Thadden, 1994. "Short-Term versus Long-Term Interests: Capital Structure with Multiple Investors," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1055-1084.
    5. Lars G. Sandberg, 1969. "American Rings and English Mules: The Role of Economic Rationality," The Quarterly Journal of Economics, Oxford University Press, vol. 83(1), pages 25-43.
    6. Maloney, Michael T & McCormick, Robert E & Mitchell, Mark L, 1993. "Managerial Decision Making and Capital Structure," The Journal of Business, University of Chicago Press, vol. 66(2), pages 189-217, April.
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