Individual investors and local bias in the UK, 1870-1935

"The paper examines the long run evolution of local bias by UK investors over almost seven decades between the 1870s and the 1930s. It uses a very large sample of nearly 30,000 shareholders based on 197 sets of share records, a large and representative database of the investor population across sectors and time. It investigates the structure and the evolution of local investment preference between shareholders and the companies in which they invested as measured by geographical distance between where investors lived and the firm’s registered office, or the nearest stock exchange. The paper also examines how geographical proximity, which can be viewed as a proxy for informal trust, was affected by corporate governance and corporate performance. The main findings highlight the importance of informal trust relationships for the development of capital markets and the critical role of London, as both economic and financial centre, on investor decision-making. The size of the firm, the size of individual shareholdings and the number of stock exchanges that the security was listed on seem to have an influence on local bias. On the other hand, investors were relatively risk averse only in relation to debentures, and saw high dividend yield as compensation for parting with local bias for public and listed securities."