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How Good was the Profitability of British Railways, 1870-1912?

Author

Listed:
  • Brian Mitchell

    (Cambridge University)

  • David Chambers

    (Oxford University)

  • Nicholas Crafts

    (Warwick University)

Abstract

This paper provides new estimates of the return on capital employed (ROCE) for major British railway companies. It shows that ROCE was generally below the cost of capital after the mid-1870s and fell till the turn of the century. Addressing issues of cost inefficiency could have restored ROCE to an adequate level in the late 1890s but not in 1910. Declines in ROCE hit share prices and returns to shareholders were negative after 1897. Optimal portfolio analysis shows that, whilst railway securities would have had a substantial weight prior to this date, investors would have been justified in rushing to the exits thereafter.

Suggested Citation

  • Brian Mitchell & David Chambers & Nicholas Crafts, 2008. "How Good was the Profitability of British Railways, 1870-1912?," The Warwick Economics Research Paper Series (TWERPS) 859, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:859
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_859a.pdf
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    References listed on IDEAS

    as
    1. William N. Goetzmann & Andrey D. Ukhov, 2006. "British Investment Overseas 1870-1913: A Modern Portfolio Theory Approach," Review of Finance, European Finance Association, vol. 10(2), pages 261-300.
    2. Mitchell, B. R., 1964. "The Coming of the Railway and United Kingdom Economic Growth," The Journal of Economic History, Cambridge University Press, vol. 24(03), pages 315-336, September.
    3. Fogel, Robert William, 1979. "Notes on the Social Saving Controversy," The Journal of Economic History, Cambridge University Press, vol. 39(01), pages 1-54, March.
    4. Crafts, Nicholas & Mills, Terence C. & Mulatu, Abay, 2007. "Total factor productivity growth on Britain's railways, 1852-1912: A reappraisal of the evidence," Explorations in Economic History, Elsevier, vol. 44(4), pages 608-634, October.
    5. McCloskey, Donald N. & Sandberg, Lars G., 1971. "From damnation to redemption: Judgments on the late victorian entrepreneur," Explorations in Economic History, Elsevier, vol. 9(1), pages 89-108.
    6. Nicholas Crafts & Timothy Leunig & Abay Mulatu, 2008. "Were British railway companies well managed in the early twentieth century? -super-1," Economic History Review, Economic History Society, vol. 61(4), pages 842-866, November.
    7. Leunig, Timothy, 2006. "Time is Money: A Re-Assessment of the Passenger Social Savings from Victorian British Railways," The Journal of Economic History, Cambridge University Press, vol. 66(03), pages 635-673, September.
    8. Grossman, Richard S., 2002. "New Indices Of British Equity Prices, 1870 1913," The Journal of Economic History, Cambridge University Press, vol. 62(01), pages 121-146, March.
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    Cited by:

    1. Grossman, Richard, 2017. "Stocks for the Long Run: New Monthly Indices of British Equities, 1869-1929," CEPR Discussion Papers 12121, C.E.P.R. Discussion Papers.
    2. Campbell, Gareth, 2012. "Myopic rationality in a Mania," Explorations in Economic History, Elsevier, vol. 49(1), pages 75-91.
    3. Grossman, Richard, 2017. "Beresford's Revenge: British equity holdings in Latin America, 1869-1929," CEPR Discussion Papers 12042, C.E.P.R. Discussion Papers.
    4. Richard S. Grossman, 2015. "Bloody foreigners! Overseas equity on the London Stock Exchange, 1869–1929," Economic History Review, Economic History Society, vol. 68(2), pages 471-521, May.

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