Accessing Capital Markets: Aristocrats and New Share Issues in the British Bicycle Boom of the 1890S

This is a repository copy of Accessing capital markets: Aristocrats and new share issues in the British bicycle boom of the 1890s. White Rose Research Online URL for this paper: http://eprints.whiterose.ac.uk/113826/ Version: Accepted Version Article: Amini, S and Toms, S orcid.org/0000-0002-6147-7828 (2018) Accessing capital markets: Aristocrats and new share issues in the British bicycle boom of the 1890s. Business History, 60 (2). pp. 231-256. ISSN 0007-6791 https://doi.org/10.1080/00076791.2017.1310196 (c) 2017, Informa UK Limited, trading as Taylor & Francis Group. This is an Accepted Manuscript of an article published by Taylor & Francis in Business History on 10 April 2017, available online: https://doi.org/10.1080/00076791.2017.1310196 Reuse Items deposited in White Rose Research Online are protected by copyright, with all rights reserved unless indicated otherwise. They may be downloaded and/or printed for private study, or other acts as permitted by national copyright laws. The publisher or other rights holders may allow further reproduction and re-use of the full text version. This is indicated by the licence information on the White Rose Research Online record for the item. Takedown If you consider content in White Rose Research Online to be in breach of UK law, please notify us by emailing [email protected] including the URL of the record and the reason for the withdrawal request. [email protected] https://eprints.whiterose.ac.uk/ Business History For Peer Review Only Accessing capital markets: Aristocrats and new share issues in the British bicycle boom of the 1890s Journal: Business History Manuscript ID FBSH-2016-0122.R2 Manuscript Type: riginal Article Keywords: Cycle, pneumatic tyres, initial public offerings, aristocracy, United Kingdom URL: http://mc.manuscriptcentral.com/fbsh Page 1 of 56 Business History 1 2 3 4 5 Accessing capital markets: Aristocrats and new share issues in the British bicycle 6 7 boom of the 1890s 8 9 10 11 12 By 13 14 For Peer Review Only 15 16 Shima Amini 17 18 Steven oms* 19 20 21 22 (University of Leeds) 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Word count: 13,100. 40 41 42 43 Acknowledgements: We would like to thank the participants at the ABH/GUG 44 conference Berlin, May 2016, and the associate editor, Abe de Jong and two 45 46 anonymous reviewers for detailed and helpful comments. 47 48 JEL: G31; G34: N13; N23; N73; N83. 49 50 51 *Correspondence details: Steven Toms, Professor of Accounting, Leeds University 52 Business School, Maurice Keyworth Building, University of Leeds, Leeds, LS2 9JT, 53 Tel: 44(113)73,3,,86, Email: %.0.1oms9leeds.ac.uk 54 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh1 Business History Page 2 of 56 1 2 3 Accessing capital markets: Aristocrats and new share issues in the cycle, 4 5 pneumatic tyre and related industries, 1892-1898 6 7 8 9 Abstract 10 11 The paper reconsiders the mid-1890s boom in which a large number of firms in the 12 13 bicycle, pneumatic tyre and related industries were floated. It investigates why so 14 For Peer Review Only 15 many of these issues featured aristocratic directors in their prospectuses and finds 16 17 that they represented social connections that were a necessary condition for regional 18 19 20 industrial firms to gain a ondon listing. The case shows that the role and value of 21 22 these directors was to access to capital markets and financial resources, as opposed 23 24 to a temporary aberration designed to inflate share prices and mislead investors. 25 26 27 28 Keywords: Cycle, pneumatic tyres, initial public offerings, aristocracy, United 29 30 3ingdom 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh2 Page 3 of 56 Business History 1 2 3 4 ,ntroduction 5 6 1he literature on the history of British capital markets has noted a divergence between 7 8 9 the London as a financial centre and regional, specialist clusters of industrial firms. In 10 11 1431, the acmillan Committee identified a so7called <equity gap’, suggesting 12 13 significant obstacles for industrial firms seeking suitably priced risk capital from 14 For Peer Review Only 15 financial markets. 1o some historians, the City of London continued to operate as a 16 17 gentlemanly elite, relying on mutual trust through an over7protective old7boy 18 19 1 20 network. 1he development of the venture capital industry after 1480 addressed the 21 22 equity gap to some degree, although many argue that inaccessibility to equity markets 23 24 and to the London markets in particular, continues today.2 25 26 1he reasons for this separation were apparently economically rational, at least 27 28 29 to begin with. In the late nineteenth century, overseas investments, particularly large 30 31 fixed interest bonds in mining, commodities, railways and infrastructure offered 32 33 higher yields and lower transaction costs relative to new issues in domestic industrial 34 35 securities. 3 Another suggested reason for London turning away from domestic 36 37 industrial issues was the experience of the 1840s domestic boom., New industries, 38 39 40 most notably those based on the development of the pneumatic tyre, including 41 42 bicycles and motor vehicles, formed the basis of a promotional boom that ended in 43 44 bankruptcy and recrimination among its leading players. Controversial promoters, 45 46 Ernest 1erah Hooley and Henry Lawson, although from middling backgrounds 47 48 49 themselves, famously recruited members of the aristocracy to be listed in the 50 8 51 prospectus as board members of their newly listed companies. 1he literature has 52 53 interpreted their use of Lords on the board either as a temporary aberration, or a 54 55 method of systematically inflating prices, and as part of a wider scheme of fraudulent 56 57 activity.6 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh3 Business History Page 4 of 56 1 2 3 In this paper we offer a new interpretation, suggesting that the use of Lords in 4 5 company promotion was symptomatic of a gap that had already emerged by the 1840s 6 7 between London as a financial centre and regional clusters of industries. 0pecifically, 8 9 10 employing aristocrats constituted a market entry strategy for new regional industrial 11 12 firms to gain access to London finance. 1he use of such a strategy was more 13 14 necessaryFor in the absencePeer of underwriting Review or other sources Onlyof insurance or access to 15 16 large issuing houses like Barings. Our interpretation thus regards access to social 17 18 19 networks as a crucial aspect of company promotion, and the board as having a 20 21 governance function of sustaining access to such networks. By presenting the 22 23 historical and social dimensions of these relationships, the paper adds to the wider 24 25 corporate governance literature on the function of boards of directors in terms of 26 27 . access to capital resources, relational capital, legitimacy and reputation. 28 29 30 1he bicycle and pneumatic tyre industry provides a useful illustration because 31 32 it involved a large number of firms and was at the centre of the domestic flotation 33 34 boom in the 1840s. Evidence can therefore be triangulated between examples of 35 36 regional firms with London listings; regional firms with regional listings, variation in 37 38 39 use of aristocratic directors, and between hot and cold issue markets. In other 40 41 industries and markets, new equity issues were more piecemeal 5for example iron, 42 43 steel, chemicals, and textile finishing based in anchester and 0heffield6. An 44 45 exception was the brewing industry, whose firms also accessed the London market 46 47 and in a minority of cases had board members drawn from the political establishment 48 49 50 and aristocratic social networks. 1hese board members appear to have had a positive 51 52 effect on share price behaviour during the phase of intense political lobbying after 53 54 1400, although the role of one firm, Guinness, seems to have been particularly 55 56 influential. 8 Evidence from the cycle industry therefore has the potential to 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh4 Page 5 of 56 Business History 1 2 3 complement and further contextualise such relationships between board composition 4 5 and stock exchange listing decisions. 6 7 In summary, our interpretation offers a potential contribution in several areas: 8 9 10 Airst, the methods used to raise equity finance in the British economy with reference 11 12 to the promotional methods typically used in initial public offerings 5I2Os6 before 13 14 141,; second,For the networkingPeer function Review of directors and third, Only the early history of the 15 16 bicycle and pneumatic tyre industry. In the next section the literature in each of these 17 18 19 areas is reviewed, leading to associated specific research questions about the role of 20 21 aristocrats in the promotion of industrial companies. 1hese are examined in the next 22 23 section by the identification of a sample of firms in the bicycle, tyre and associated 24 25 industries such that their characteristics can be systematically compared. A 26 27 concluding section shows that aristocratic directors were a necessary requirement for 28 29 30 the purposes of accessing London finance by industrial firms and that the ultimate 31 32 failure of these methods was symptomatic of a growing divergence between the 33 34 industrial and financial sections of the British economy.

Load more