The rise and fall of Railtrack PLC: an event study

Forming Railtrack was a key part of the privatization of British Rail (BR). Railtrack took over the ownership of BR's fixed infrastructure in April 1994 and its parent company, the Railtrack Group, was floated in May 1996 on the London Stock Exchange (LSE). Despite the group posting some excellent financial results in the early years, Railtrack's record on infrastructure improvement and safety was frequently criticized. This apparent inconsistency between shareholder interests and public service obligations culminated in Railtrack being placed in administration in October 2001. In view of this apparent inconsistency and the High Court claim for additional compensation brought against the government by a group of 49 000 small investors, the reaction of the stock market to 19 key events is modelled. Among other things, we find when Railtrack announced after the fatal derailment of a high-speed train near the Hertfordshire town of Hatfield that there would be a 6-month programme of emergency track repairs, the Group's share price was marked down, but it did not plummet. Even though Railtrack was in panic mode, it appears that investors decided to hold onto their shares, believing the panic would have no long-term repercussions. This proved to be a huge error of judgement.