Did industry fail the City? Debt, company finance, and financial institutions: a case study of the engineering/vehicle industries

"This paper considers how and why industry raised external finance to fund investment in the interwar years. Using new datasets we examine how industry responded to the potential domestic market and hence the need to raise external funding, differentiating between debt and equity finance. To date, the literature has focused on banks as a form of finance and on the staple and depressed industries. This paper widens the agenda to look beyond banks as a source of short-term debt to include the stock market as a source of long-term finance. It equally considers how and why ‘new’ industries responded to the growth of the domestic market in the use of equity as a source of external finance. We adopt a case study approach to demonstrate that recourse to the stock market to raise external funds was rational in expanding industries (electrical and motor engineering). We show that the composition of external finance (debt, equity; bank loans, etc), varied through time and was itself partly determined by assessment of the relative costs of the types of external finance (itself determined by variation in the base rate/gold standard), and we can use it to question the Thomas hypothesis that only long established firms received support from the equity markets."