Financial Dependence and Firm Survival in Interwar Britain
Was the London Stock Exchange (LSE) little more than a Dickensian den of speculation, or did it make a contribution to industrial development in Interwar Britain?� The interwar stock market laboured under problems of weak disclosure, inadequate investor protection and ineffective underwriting.� New manufacturing industries were the most vulnerable to resulting asymmetric information problems.� Drawing on a new database of IPOs on the London Stock Exchange between 1919 and 1938, I conclude that new manufacturing firms were finance-constrained.� Consistent with the Rajan-Zingales financial dependence hypothesis, this result reflects the weak interwar institutional environment.� The disastrous IPO survival rates of the late 1920s provide further evidence of this weak environment.� Yet, when issue activity rebounded strongly in the following decade, a dramatic improvement in survival ensued, due, in part, to the efforts of the LSE.� This was an early example of the "light touch" regulatory approach for which London has subsequently become renowned.
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