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: Original 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 Toms* 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) 3434456, Email: [email protected] 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 London 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 Kingdom 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 Introduction 5 6 The 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 1931, the Macmillan Committee identified a so called ‘equity gap’, suggesting 12 13 significant obstacles for industrial firms seeking suitably priced risk capital from 14 For Peer Review Only 15 financial markets. To some historians, the City of London continued to operate as a 16 17 gentlemanly elite, relying on mutual trust through an over protective old boy 18 19 1 20 network. The development of the venture capital industry after 1980 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 The 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 1890s domestic boom.4 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 Terah Hooley and Henry Lawson, although from middling backgrounds 47 48 49 themselves, famously recruited members of the aristocracy to be listed in the 50 5 51 prospectus as board members of their newly listed companies. The 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 1890s 6 7 between London as a financial centre and regional clusters of industries. Specifically, 8 9 10 employing aristocrats constituted a market entry strategy for new regional industrial 11 12 firms to gain access to London finance. The use of such a strategy was more 13 14 necessaryFor in the absencePeer of underwriting Review or other sources Only of 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.7 28 29 30 The 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 1890s. 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 (for example iron, 42 43 steel, chemicals, and textile finishing based in Manchester and Sheffield). 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. These 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 1900, 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 First, 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 (IPOs) before 13 14 1914; 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. These 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. 35 36 37
38 39 40 Equity finance, the function of boards and the bicycle and pneumatic tyre 41 42 industry 43 44 45 IPOs in the UK before 1914 46 47 In the period before 1914, new industrial firms faced an apparent choice between 48 49 50 listing their shares on the London Stock Exchange (LSE), and a listing on one or more 51 52 of several regional stock exchanges. An LSE listing offered the advantage of a deeper 53 54 market whereas regional exchanges avoided the transaction costs associated with the 55 56 specialised functions of brokers and jobbers in London. Regional listings also 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh5 Business History Page 6 of 56
1 2 3 mitigated information asymmetry since local knowledge of the venture, including the 4 5 reputation of the vendor and the prospects for the business, helped ensure that new 6 7 securities were issued at prices close to their values.9 8 9 10 Several large sample studies have examined UK IPOs in the decades prior to 11 12 1914 with a focus on higher status, or elite directors. In these studies, elite directors 13 14 are typicallyFor defined Peer as peers, politicians Review and military officers. Only There is little evidence 15 16 that elite directors played a decisive or even positive role. They did not for example 17 18 10 19 reduce the risk of failure of IPOs on the LSE in the period 1900 1913. Other 20 21 evidence shows that the appointment of well connected directors (either MPs or 22 23 directors with aristocratic titles) did not increase the rate of return on English and 24 25 Welsh banks equity during 1879 1909 and that M.P. directors had negative effects on 26 27 the financial performance of bank equity, whereas directors with noble titles had no 28 29 11 30 distinct effect. 31 32 These findings offer specific evidence in the context of the more general 33 34 argument that the capital markets failed the British economy. According to this view, 35 36 lack of effective regulation meant that the market was subject to manipulation and 37 38 39 failed to attract sufficient capital to secure Britain’s longer term investment needs, 40 12 41 contributing to a decline in its international position. An important reason was the 42 43 accusation of fraud in leading cases, and, partly as a consequence, the role of lords 44 45 and other figures of social standing was satirised by contemporary social observers.13 46 47 However, it has also been suggested that it would be unreasonable to 48 49 50 generalise from these cases. Indeed there were other examples, such as the Kodak 51 52 flotation, when Eastman recruited Lord Kelvin to the board precisely because of his 53 54 relevant technical and business experience. Voluntary regulation therefore assured 55 56 flexibility and provided suitable incentives for companies to go public. 14 These 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh6 Page 7 of 56 Business History
1 2 3 divergences in the literature suggest the need for further empirical research into the 4 5 rationales behind the recruitment of elite directors into the financial sector. 6 7 8 9 Connected directors and social networks 10 11 Financial research that has examined the role of directors in new issues generally has 12 13 emphasised their function in quality signalling such that the risk of failure or 14 For Peer Review Only 15 mispricing in an IPO is reduced. Signals include the reputations of directors and their 16 17 associated managerial talent, along with the reputations of auditors, underwriters, and 18 19 15 20 venture capitalists. The affiliation and legitimation aspects of such signals are also 21 16 22 of substantial importance. 23 24 Directors’ reputation can thus provide a credible signal in some circumstances. 25 26 Elite directors are more likely to have useful political connections. Such connections 27 28 29 can enhance financial performance of newly listed firms. Conversely, in some 30 31 context, they may send a negative signal about the likelihood of conflict of interest 32 33 and corruption.17 Also, in common with other directors, elite directors may provide 34 35 resources for the firm in terms of expertise based on specialist knowledge or business 36 37 experience.18 38 39 40 Even in the absence of political connections or relevant expertise, elite 41 42 directors’ reputation may also be valuable in its own right. In the late nineteenth 43 44 century, aristocrats were an essential element in the marketing of shares, and added 45 46 prestige, especially if the list of names resonated with the public.19 Such directors 47 48 49 would be reluctant to sacrifice their reputation and their social position by sitting on 50 51 boards of poorly performing firms, and rather would try to enhance their reputation by 52 53 associating with firms with good growth prospects and sound finances.20 54 55 In the pre 1914 UK new issue market context, information asymmetry was as 56 57 severe if not more so than in modern markets. Victorian company promoters were 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh7 Business History Page 8 of 56
1 2 3 better informed about the prospects of the ventures they were selling than were the 4 5 vast majority of potential buyers.21 However, access to certain networks was also 6 7 clearly an important part of the process of financing economic activity. According to 8 9 10 one survey, politically connected directors boosted the share prices of new technology 11 12 firms, also providing greater access to external finance, both debt and equity, and 13 14 improvedFor profitability. Peer22 Related evidenceReview suggests that shareholdings Only were typically 15 16 highly concentrated post issue,23 providing potentially important context for the role 17 18 19 of elite directors within such ownership structures. Politically connected directors 20 21 could allow firms to access their networks of acquaintances and establish contacts 22 23 with bankers and possible financiers.24 24 25 Aristocratic directors may have been recruited to boards for similar reasons. 26 27 The Lords on the board, or ‘guinea pig’ directors, phenomenon first appeared in the 28 29 30 1825 company promotion boom. Following the restrictions on incorporation after the 31 32 South Sea bubble, 1825 was the first opportunity for such a boom since 1720. Of 33 34 course, the South Sea scheme had also utilised famous and titled individuals for the 35 36 purposes of pushing the stock, so in that sense, nothing changed as Britain rapidly 37 38 39 industrialised in the railway booms of the 1830s, 1840s and 1850s. Guinea pig 40 41 directors also featured during the associated ‘railway mania’ through to the 42 43 promotional booms of the 1920s.25 By the 1880s, as Kynaston notes: ‘the upper 44 45 reaches of the City moved increasingly close to the traditional landed governing class, 46 47 thereby achieving an intimate and privileged access to power denied their industrial 48 49 26 50 counterparts in the provinces’. Provincial listings, particularly of railway and 51 52 banking stocks, appealed to pools of investors with access to local social connections 53 54 and information sources, whereas London especially for firms headquartered there, 55 56 offered a larger potential secondary market with a low equity premium.27 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh8 Page 9 of 56 Business History
1 2 3 An important possible reason then, why promoters like Hooley and Lawson 4 5 might use aristocratic directors would be that they offered access to a market that 6 7 might otherwise have been closed to provincial industrial firms. Hooley certainly 8 9 10 utilised peers for their names, whom he described as ‘front sheeters’ for their 11 12 prominent role of the first page of the prospectus in return for cash. Hooley had a 13 14 clear ideaFor about thePeer value of hierarchy Review in the peerage inOnly this respect and also of 15 16 military officers and politicians.28 However, aristocrats were used in some cases but 17 18 19 not others, with the larger London based floats apparently requiring greater 20 21 aristocratic presence, suggesting that further empirical research might establish the 22 23 precise circumstances in which they were needed. 24 25 26 The bicycle and pneumatic tyre industry 27 28 29 Company flotations in this sector have unsurprisingly attracted considerable attention 30 31 from business and economic historians given the significance of the sector in the new 32 33 issues market and their importance for the wider economy.29 Specifically, the cycle, 34 35 tyre and related industries sector offers a useful case study for a number of reasons. 36 37 First it represented a new sector of the economy based on newly developed and 38 39 40 closely inter related technologies introduced in the late 1880s and early 1890s with 41 42 the opportunity for rapid potential market expansion if the needs for associated 43 44 finance could be met. The ability to raise such finance in substantial part depended on 45 46 patents and associated licensing agreements. In the case of Dunlop, to effectively 47 48 49 exploit such patents, the firm launched overseas subsidiaries, and also sub contracted 50 51 most component production to other firms, concentrating only on assembly at its 52 53 factory in Coventry.30 Patents tended to become obsolete quickly as new methods 54 55 were invented. Moreover, new firms relied upon associated investments in 56 57 infrastructure, which in turn were at the behest of government and municipal 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh9 Business History Page 10 of 56
1 2 3 approvals.31 Future cash flows were therefore risky and difficult to ascertain, thereby 4 5 increasing the potential cost of finance. Small pioneering regional firms, like Fred. 6 7 Hopper and Co. struggled to obtain the finance required to expand their businesses.32 8 9 10 Notwithstanding these problems, substantial equity was raised from capital 11 12 markets. In the period c.1896 1914 the cycle industry raised over £14m in new share 13 14 issues Forand the motor Peer vehicle industry Review over £6m.33 There wereOnly significant booms in 15 16 company flotations in cycles, tyres and embryonically in motor vehicles in 1896 1897 17 18 19 and a more fully fledged boom in motor vehicles in 1905 1906. In the period 1882 20 21 1914 there were 328 new share issues with an average capital raised of £64,000 22 23 each.34 The boom of 1896 1897 was notable for the tendency to include aristocrats on 24 25 the boards of directors, few of whom, with minor exceptions, had relevant business 26 27 experience, some of whom were paid by Hooley in his capacity as promoter.35 28 29 30 To summarise, there are two broad explanations of the value of aristocrats on 31 32 the boards of IPO firms generally and those participating in the bicycle boom in 33 34 particular. First, lords were merely nominees, with no useful business knowledge 35 36 employed by fraudulent promoters to push mispriced shares and to overcome the 37 38 39 information asymmetry problem between promoters and potential shareholders. 40 41 Second, lords were a bridge to a social network essential for access to the London 42 43 capital market otherwise denied by institutions preoccupied with overseas 44 45 investments. Of course, the two explanations are not mutually exclusive and indeed 46 47 may complement one another. However, in concentrating on the first, the above 48 49 50 literature has tended to neglect the second, and so the next section introduces further 51 52 evidence designed to shed further light on the role of aristocrats in securing market 53 54 access. 55 56 57 Data and methodology 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh10 Page 11 of 56 Business History
1 2 3 To investigate these explanations a database of firms in the bicycle, pneumatic tyre 4 5 and related industries was constructed for the period 1892 1897. The sector was 6 7 defined to include firms producing bicycles, components for bicycles, pneumatic tyres 8 9 36 10 and also motor vehicles. In total, 73 new listings were identified from Times Book of 11 12 Prospectuses. In each case the names and occupations of board members were 13 14 obtainedFor from the Peer prospectus using Review the same source. Information Only concerning the 15 16 exchange(s) on which the shares were to be listed was also obtained along with share 17 18 19 price data using the London Stock Exchange (LSE) listing application Report Books,
20 37 21 the share listings in national and regional newspapers. 22 23 For the purposes of further analysis, several grouping variables were 24 25 established. First, the sample was grouped according to the principal outcome variable 26 27 to be explained: stock exchange listing, distinguishing between London and regional 28 29 30 listings, or where firms were listed in both London and a regional exchange. In almost 31 32 all cases (with three exceptions) firms with London listings also had quotes on 33 34 regional markets, so for practical purposes the distinction is between regional only 35 36 and London and regional. For this reason, it is unlikely that differential returns on 37 38 39 London and regional markets were influential in the listing decision. 40 41 The sample was also differentiated according to whether the firm formally 42 43 applied to the LSE or the shares were listed unofficially. The main explanatory 44 45 variable was defined as the presence of ‘lords’, based on the titles of directors listed in 46 47 the prospectus.38 Further variables with the potential to explain variation in listing, 48 49 50 included: product type, distinguishing between tyre and cycle/other, on the grounds 51 52 that tyre firms were typically larger and thus required greater access to finance; 53 54 whether or not the firm controlled a patent and therefore required greater quality 55 56 signalling to validate cash flows forecast to arise from intangible assets; whether or 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh11 Business History Page 12 of 56
1 2 3 not additional capital was raised in the form of debentures and preference shares, with 4 5 the expectation that London may have been a more suitable for multiple classes of 6 7 capital; whether or not the firm had a head office in London, with the expectation that 8 9 10 the convenience of geographical location may determine how finance is accessed. In 11 12 addition, data was collected for size of issue in terms of total capital and a share price 13 14 index wasFor established Peer based on allReview firms with regular quotations, Only so that individual 15 16 firms could be compared with an industry sector index based and weighted average 17 18 19 returns compared over time. The volume of issues and share prices were analysed by 20 21 sub period to identify ‘hot’ and ‘cold’ issue markets, so that the presence or absence 22 23 of aristocrats and other elite directors on boards in such periods could also be 24 25 compared. 26 27 An innovative analytical approach is used to identify the conditions that were 28 29 39 30 necessary and sufficient for accessing London capital. Exact logistic analysis is 31 32 appropriate for small data samples consisting of 1/0 variables and has been used in 33 34 other disciplines, most notably medical research, but not, to our knowledge, thus far 35 36 in business history or related subjects. We believe this approach has potentially wide 37 38 39 application in business history and other historical settings, given the common 40 41 occurrences of small sample sizes and recourse to qualitative variables. A further 42 43 advantage is that systematic relationships identified using the exact logistic method 44 45 can be supported using case studies or further qualitative evidence drawn either from 46 47 observations confirming the larger correlation or from outliers, thereby triangulating 48 49 50 the evidence and pinpointing the nature of underlying relationships. To supplement 51 52 the above dataset, therefore, illustrative cases were also identified and investigated 53 54 using a combination of press coverage and accounting data, allowing further 55 56 consideration of the specific motives of the promoters and also the accuracy or 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh12 Page 13 of 56 Business History
1 2 3 otherwise of their valuations of the underlying businesses. Taken together, these 4 5 diverse sources allow for the triangulation of evidence, as set out in the next section. 6 7 8 9 10 Evidence and analysis 11 12 The distribution of aristocratic directors 13 14 Table For 1, Panel A describesPeer the sampleReview distribution across Only the categorical variables 15 16 used, which were in most cases evenly distributed. The exceptions were the tyre 17 18 19 sector, which was small compared to cycle producers, and the relatively small number 20 21 of firms issuing preference shares and debentures (17 and 15 respectively). Table 1, 22 23 Panel B reports the results of the exact logistical regressions for the sample and 24 25 variables discussed above. As table 1 shows, the presence of a lord on the board was 26 27 the only significant predictor of the decision to apply for a London listing. A firm 28 29 30 with an aristocratic director(s) was around 7.5 times more likely to seek a London 31 40 32 listing than a firm without such directors. There is thus strong evidence that Lords 33 34 were recruited to boards for the purpose of accessing London finance. To investigate 35 36 further, the tests were repeated replacing the London stock exchange listing 37 38 39 dependent variable with a similar dummy, determined by whether or not the firm was 40 41 listed as a London quotation by the Financial Times. The result in this case was that 42 43 the lord on the board variable became insignificant. To explain the difference, it 44 45 should be that substantially more London quotations were listed in the Financial 46 47 Times than there were cases of firms officially applying to the stock exchange 48 49 41 50 admissions committee. The implication therefore was that the Financial Times was 51 52 listing the prices quoted by unofficial London traders. In some cases these traders 53 54 were motivated by the opportunities to arbitrage price differences between regional 55 56 and London markets, known as “shunting”,42 and the appearance of quotes for firms 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh13 Business History Page 14 of 56
1 2 3 in more than one market may have reflected the extent of these opportunities. The 4 5 change in results using this new dependent variable therefore suggests that the 6 7 purpose of recruiting aristocrats was specifically to support the process of official 8 9 10 admission to the stock exchange, rather than to offload stock to speculative dealers 11 12 based in London or elsewhere. 13 14 For Peer Review Only 15 16 Table 1 about here 17 18 19 20 21 In contrast to Lords other potential explanatory variables were consistently 22 23 insignificant.43 Patents featured strongly in many prospectuses (44 out of 73; table 1), 24 25 but as the evidence suggests these did not influence whether or not a firm applied for 26 27 a London listing. All 14 tyre producing firms which were listed with quotes in the 28 29 30 Financial Times in January 1897 were quoted in London, in contrast for example to 31 32 tube firms, which had only 1 out of 12 firms quoted in London (with the remainder in 33 34 Birmingham),44 but there was no corresponding relationship between type of product 35 36 and the formal application for listing. Firms issuing different types of capital, 37 38 39 preference shares and debentures, were not in the general case associated with 40 41 admission to the London market. Indeed regional markets appeared to offer at least as 42 43 much support for preference issues. For example on 2nd January 1897 the Financial 44 45 Times listed 4 firms within the cycle sub sector with preference shares quoted in 46 47 London but 7 quoted in Birmingham.45 Head office location was also insignificantly 48 49 50 related to London listing applications. Another way of interpreting these results is that 51 52 for industrial firms, regardless of asset type, production activity, or class of capital 53 54 required, the provincial stock markets offered suitable institutional support. 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh14 Page 15 of 56 Business History
1 2 3 The core hypothesis therefore remains, that the use of lords reflected linkages 4 5 between industrialists and social networks, which, being more closely orientated to 6 7 London, were potentially larger in scale and scope. In Table 1 panel C, the effects of 8 9 10 the size of equity issues are contrasted. The results show that the average issue size 11 12 was significantly larger for firms with Lords on the board and for firms that applied 13 14 for LondonFor listings. Peer Given the larger Review pools of capital available Only in London, these scale 15 16 effects are unsurprising. Accessing London provided the opportunity to sell shares not 17 18 19 just to a wider public, but also to larger and more socially elevated investors. These 20 21 possibilities are explored further in the case study evidence presented below. 22 23 24 25 Share price behaviour 26 27 To contextualise the econometric and case study evidence, it is necessary to examine 28 29 30 further the context of the share market, specifically so that any association between 31 32 promotion methods and market conditions can be assessed. To identify the ‘hot’ and 33 34 ‘cold’ phases of the promotions market, the number of firms floated per month is 35 36 plotted in Figure 1 using our sample of 73 firms. In the finance literature, ‘hot’ issue 37 38 39 markets have been characterised as periods of relatively high volumes and where 40 41 there is correlation between current levels of IPO initial returns and increases in future 42 43 IPO volumes.46 Given our relatively small sample size, we followed the first approach 44 45 and computed a three month moving average for the share issues in our sample and 46 47 defined ‘hot’ months as those where the number of new issues was in the top quartile. 48 49 50 These calculations showed that apart from a minor boom in June/July1893, all ‘hot’ 51 47 52 months fell in the period March 1896 April 1897 inclusive. 53 54 Figure 1 about here 55 56 Figure 2 about here 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh15 Business History Page 16 of 56
1 2 3 To examine the state of the market further, figure 2 shows the pattern of share 4 5 price movements, using an equally weighted market index of share price quotations 6 7 for cycle and related firms. As figure 2 shows, shares in cycle firms did not appreciate 8 9 10 significantly until the boom of spring 1896. In the pre boom period relatively few new 11 12 firms were floated and these did not use aristocratic directors. Such firms were listed 13 14 on regionalFor stock Peer markets, which Review included Dublin. For Only example, shares in the 15 16 Grappler Pneumatic Tyre Company were issued on the Dublin market in May 1893.48 17 18 19 Taken together, the pattern in figures 1 and 2 suggests that the hot market that 20 21 commenced around March 1896 was over by April 1897. 22 23 By this time all firms were suffering the consequences of oversupply in the 24 25 product market. The problem was not just that too many British firms had been 26 27 floated, but that the market was now also flooded with American imports. Vernon 28 29 30 Pugh, the Managing Director of Rudge Whitworth Limited, announced 25% price 31 32 reductions on its cycles, based on its capacity to deliver increased output, but also 33 34 reflecting the increased saturation of the cycle market. At Easter 1897 stories had 35 36 circulated of overstocking and inevitable price cuts. Press commentators agreed that 37 38 39 the days of inflated cycle prices were numbered. ‘Profits’, according to one, ‘based in 40 41 the prospectus on large sales and high prices, will be difficult to realise in the 42 43 disgracefully over capitalised concerns’.49 44 45 In summary, wider market trends explain the transition from hot to cold 46 47 market conditions for new share issues in the first half of 1897. They also provide a 48 49 50 possible explanation of the secular decline in share prices after March 1897. 51 52 Moreover, they tend to undermine the view that the hot market was a function of the 53 54 overpricing of shares, particularly those of Dunlop, at the height of the boom in May 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh16 Page 17 of 56 Business History
1 2 3 1896. This issue is examined in more detail in the case study analysis of Dunlop and 4 5 other leading flotations that now follows. 6 7 8 9 10 Case study evidence 11 12 The case study evidence concentrates first on accessing the London capital market, 13 14 concentratingFor on DunlopPeer and other Reviewleading cases that utilised Only aristocratic connections. 15 16 Second, these are contrasted with cases where firms accessed London but without 17 18 19 utilising aristocrats. A third, further contrast is then made with regional floats and 20 21 networks and the reasons why they were preferred in some cases. Fourth, this leads on 22 23 to cases where firms accessed both London and regional networks simultaneously, 24 25 utilising aristocrats and other groups of network influencers, exemplified by Lawson, 26 27 and his ambition to monopolise the sector. Finally, further cases illustrate how these 28 29 30 groups, notably society officials, politicians and military leaders complemented the 31 32 involvement of aristocratic directors. Examining these contrasts allows further 33 34 exploration of the sufficient and necessary conditions for accessing the London 35 36 capital market 37 38 39 40 41 Figure 3 about here 42 43 44 45 As the largest new issue, Dunlop, whose float on the London market, 46 47 prominently featuring aristocratic directors, made Hooley’s name as a financier, 48 49 50 provides the logical starting point for analysing the key features of the cycle boom. 51 52 Figure 3 shows share index values for the Pneumatic Tyre Company (PTC) and the 53 54 post flotation successor company to PTC, the Dunlop Pneumatic Tyre Company 55 56 (DPTC) compared to the index for the sector as a whole. The Dunlop floatation 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh17 Business History Page 18 of 56
1 2 3 prompted the sharp rise in the index in April/May 1896, which coincided with 4 5 Hooley’s purchase of PTC and its reflotation a couple of weeks later as the DPTC. 6 7 The spike in Dunlop shares in May 1896 suggests that, in common with previous 8 9 10 interpretations of the episode, aristocrats were a convenient method of overinflating 11 12 the shares. It is certainly true that Hooley recognised the need for publicity, as his 13 14 memoirsFor stressed, Peer and he saw aristocraticReview directors as Only a means to this end. 50 15 16 Contemporaries and subsequent histories suggested that Hooley performed a stroke of 17 18 51 19 genius in buying PTC for £3m and selling it for £5m only a few weeks later. 20 21 However, this version of events is only a part of the story. PTC’s profits had 22 23 grown rapidly at an annual equivalent rate of 133.58% between 1890 and 1896.52 In 24 25 the same period, the industry growth rate was around 13%.53 Even so, the PTC share 26 27 price was relatively static (figure 3). PTC shares were quoted on the Dublin market 28 29 30 where they were thinly traded relative to London, and where shareholders came to 31 54 32 expect profits to be paid out as dividends. The asset base of the company was, as a 33 34 consequence, expanded in response to increased demand for its products by new share 35 36 issues, rather than by reinvested profits. The high dividend pay out and dilution 37 38 39 through new issues explain why there was no significant long term growth in share 40 41 value prior to 1896. The proceeds of these issues were included in PTC ‘profits’ as 42 43 recorded in the Dunlop prospectus. Even so PTC and DPTC seem to have been fairly 44 45 priced by Hooley.55 Stripping out share issue proceeds, it can be observed that Hooley 46 47 purchased the PTC at a valuation of 13.64 times net earnings. Interim results were 48 49 50 released just ahead of the DPTC issue showing an annualised equivalent increase of 51 52 68.29% on the last full year’s profits to 1895. Bearing in mind that of the £5m total 53 54 issue value for DPTC, £1m was in debentures, the theoretical value of post debenture 55 56 interest profits, factoring the increase in earnings and using the PTC multiple, was 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh18 Page 19 of 56 Business History
1 2 3 around £4.5m, whereas Hooley sold the company for only £4m net of debentures.56 4 5 Not only that, but contemporary sources suggested that the shares were 6 7 oversubscribed by between 8 and 15 times.57 8 9 10 Hooley, it seemed, had under priced the issue by a substantial margin. Such an 11 12 outcome was surprising in view of the triumphal fanfare of publicity that greeted the 13 14 float. AristocraticFor directorsPeer had indeed Review assisted Hooley in creatingOnly positive publicity, 15 16 but were not in themselves sufficient for Hooley to feel confident enough to price the 17 18 19 issue in line with the growth in earnings. Indeed when full year figures became 20 21 available, they proved that Hooley’s apparently confident extrapolation of the first 22 23 five months results in the prospectus had also been an underestimate. The accounts to 24 25 31st March 1897 were issued on 8th July 1897. They showed a profit of £592,618 26 27 compared to an equivalent figure of £361,864 for the previous 12 months, as implied 28 29 58 30 by the figures supplied in the prospectus, representing a 63.7% increase. 31 32 So why did Hooley under price the issue, apparently by a substantial margin? 33 34 For established London market operators, issues could be readily placed through 35 36 social networks or they could take advantage of underwriting services that had been 37 38 59 39 recently developed by financiers like H Osborne O’Hagan. As an outsider, Hooley 40 41 did not have access to the institutional contacts required to avoid risk in such fashion. 42 43 He therefore also partially covered his position by taking shares in the flotation 44 45 amounting to 33,333 in each class of preference, ordinary and deferred shares, with 46 47 his associates taking similar numbers.60 48 49 50 Aristocratic directors no doubt helped underpin share values, in conjunction 51 52 with these hedging strategies, but Hooley had further reasons for employing them. 53 54 The Earl De la Warr61 was the conduit through whom other aristocrats were recruited 55 56 and Hooley was able to satisfy his own narcissism and gain access to new social 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh19 Business History Page 20 of 56
1 2 3 circles and gain status. For this reason, Hooley’s relationship with De la Warr was 4 5 long term, rather than purely for the purpose of being a name on the Dunlop 6 7 prospectus.62 A specialist trade magazine described De le Warr as young, energetic 8 9 63 10 and ‘go ahead’, and he remained as Chairman of the board at Dunlop for over a year 11 12 after the issue before stepping down at the first annual general meeting in July 1897 in 13 14 favour Forof Harvey DuPeer Cros, but continued Review to serve on the board,Only as did the Duke of 15 16 Somerset.64 17 18 19 The longer run behaviour of the DPTC share price also suggests that the role 20 21 of the aristocratic directors went beyond mere inflation of the issue price. Although 22 23 Dunlop did peak in May 1896, immediately after its flotation, it is noteworthy in 24 25 figures 2 and 3 that the index generally remained high until March 1897, and that 26 27 Dunlop shares did not begin a secular trend downwards until June 1897, over a year 28 29 30 after the original flotation. De la Warr strongly denied that his role was purely 31 65 32 cosmetic in response to allegations presented by Hooley in court. Indeed it was only 33 34 after Hooley’s bankruptcy in 1898 that recriminations began, with Hooley noting that: 35 36 ‘the immediate consequence…was that all my aristocratic friends deserted me’. He 37 38 39 also pointed out that ‘…my retirement from London made a tremendous difference to 40 41 me financially. The hundred and one different schemes in which I had been interested 42 43 naturally had to be dropped…’66 The allegations that followed, of bribery, fabrication 44 45 of evidence and the evident superficiality of the role of the aristocrats reflected the 46 47 breakdown of relationships and have coloured the historiography of the bicycle boom 48 49 50 since. 51 52 This is not to say that Hooley was not an unscrupulous operator. Another 53 54 tactic he favoured in some circumstances, again by way of hedging against short 55 56 sellers, was the ‘bear squeeze’. In smaller issues that were likely to be 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh20 Page 21 of 56 Business History
1 2 3 undersubscribed and thinly traded, his methods did not necessarily depend on 4 5 aristocrats and instead involved cornering the market in shares such that speculators 6 7 committed to shorting the issue could only fulfil their orders by paying a monopoly 8 9 10 price. Hooley used this approach in the Humber Portugal flotation of 1896, so that he 11 12 was able to extract £13 1/2 per share from bear traders who had attempted to short the 13 14 partly calledFor shares Peer at their opening Review premium of ¼, threatening Only them with bankruptcy 15 16 and making a personal profit of £32,000.67 Another leading case was the Bagot Tyre 17 18 68 19 Company, where similar methods were used. In cases where relatively small 20 21 industrial companies were floated, then, for the same reason that aristocratic directors 22 23 were recruited to facilitate market access, the bear squeeze offered a potential 24 25 insurance mechanism for otherwise risky floats without access to underwriting and 26 27 institutional support. 28 29 30 Hooley’s motives for using aristocrats were also revealed by cases outside the 31 32 cycle and related industries sector. Hooley’s introduction to a scheme to purchase the 33 34 Chinese national debt for £16m came via Sir Robert Hart, who already had strong 35 36 connections in that country. The China deal represented an attempt by Hooley to 37 38 39 penetrate the world of high finance, and it is noteworthy that pressure on the Chinese 40 41 government from Barings and Rothschilds, who described Hooley as ‘nothing better 42 43 than a company promoter of low standing’, was sufficient to scupper the deal.69 These 44 45 incidents indicate why Hooley and others might have sought alliances with aristocrats 46 47 as a means of penetrating otherwise closed financial networks. 48 49 50 Other contemporary promoters operating outside the cycle sector used similar 51 52 methods to access the London financial network. Horatio Bottomley and Whitaker 53 54 Wright,70 promoted fewer but typically larger firms than those promoted by Hooley 55 56 and Lawson, but again their business model involved the use of aristocratic directors. 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh21 Business History Page 22 of 56
1 2 3 However, none of these firms were domestic industrial issues, and involved 4 5 publishing and overseas ventures, principally in Australasia. 71 Bottomley’s new 6 7 publishing combine, Kegan, Paul, Trench, and Trubner, did not have direct 8 9 10 aristocratic representation. Even so, the board was well populated with bankers with 11 12 connections to junior branches of the aristocracy, holding official London government 13 14 positionsFor or with Peer strong political Review connections. 72 In this Only case, explicit aristocratic 15 16 representation would not have added value beyond the connections of the elite 17 18 19 directors already in place. 20 21 Notwithstanding the apparent value of aristocrats, there was a second group of 22 23 cycle boom cases where firms secured London listings without them. Their success 24 25 was, however, down to other pre existing forms of social connection to London 26 27 networks. Examples included Claremont Cycle, whose board included Albert King, 28 29 30 Colonial Merchant of Aldermanbury London) and New Seddon Pneumatic Tyre, 31 73 32 where a large block of shares was reserved for the London and Scottish Agency Ltd. 33 34 Cycle Industries Corporation, a venture capital fund specialising in conversions of 35 36 existing firms and offering advice on patent law recruited a board consisting of 37 38 74 39 London based directors, including a banker, of mostly overseas firms. The Britannia 40 41 Motor Carriage Company applied for a London listing without aristocratic 42 43 representation, but was in any case located in London.75 Two other firms, the Elswick 44 45 Cycles Company and Ixion Pneumatic Tyre Company were connected through joint 46 47 ownership to firms that were already quoted in London. Ixion was purchased by 48 49 50 Vickers as part of its acquisition of Maxim Nordenfelt, and was also located in 51 76 52 London. For these firms access to London finance could be secured via existing 53 54 connections without the need for aristocratic directors. 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh22 Page 23 of 56 Business History
1 2 3 A similar utilisation of pre existing networks, based on regional structures, is 4 5 discernible in a third group of cycle and related industry floats, whose characteristics 6 7 influenced whether Lords were used or not. These were are well illustrated by the 8 9 10 case of Raleigh, where the influence of local financial networks resulted in a strong 11 12 pull away from London. Hooley and Frank Bowden, the Chairman and main 13 14 shareholderFor of Raleigh, Peer were ‘mutual Review friends’77 and Bowden Only may have found him a 15 16 helpful contact when he decided to restructure Raleigh using a share issue in March 17 18 19 1896. Hooley deemed aristocrats unnecessary, and the reason offered was revealing. 20 21 Giving evidence to the High Court in 1898, Hooley commented that he did not recall 22 23 payments to directors, as they were local men and ‘not quite so expensive as London 24 25 directors’.78 Not using high profile directors had subsequent advantages. Transactions 26 27 involving Hooley’s payments to directors were scrutinised in detail for most of his 28 29 30 floats, but Raleigh attracted no such attention during these hearings. 31 32 In the meantime, Bowden needed capital to expand production, but otherwise 33 34 distrusted outside shareholders. He issued the minimum number of shares to the 35 36 public required under stock exchange listing rules and after the issue purchased as 37 38 79 39 many as he could in the open market, as those he regarded as ‘speculators’ sold out. 40 41 In contrast, Bowden regarded local shareholders as ‘investors’ and appreciated that 42 43 they were suspicious of Hooley and London speculators.80 Consequently, Hooley was 44 45 not referred to in the prospectus or listing application, and the profit offered to him on 46 47 the transaction was small.81 Notwithstanding the application for a special settlement 48 49 50 with the LSE, Raleigh shares were subsequently quoted in Birmingham, but not 51 52 London. Raleigh also used a local bank, Robinson’s Nottinghamshire Bank, in 53 54 contrast to the more typical new issue which utilised national banks and their 55 56 associated branch structure.82 So, although London provided short term liquidity for 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh23 Business History Page 24 of 56
1 2 3 the Raleigh issue, regional capital was preferred, and was indeed sufficient for 4 5 Bowden’s purposes over the longer run. 6 7 A further example of the prevalence of regional markets over London was the 8 9 10 float of the Endurance Tube and Engineering Company. It had attempted to apply for 11 12 a London listing in May 1896, at the height of the boom, but without listing 13 14 aristocratsFor on its Peer board. The issueReview failed. A subsequent Only issue, again without 15 16 aristocrats, led to a successful listing on the Birmingham stock exchange. Notably, the 17 18 19 board of Endurance consisted entirely of directors of other Birmingham connected
20 83 21 cycle firms. 22 23 A possible explanation for the behaviour of Raleigh and Endurance was that 24 25 local investors were better informed about business prospects and offered access to 26 27 regional social networks. Certainly this was the case in sectors like banking and 28 29 30 railways, which gave strong impetus to the emergence of regional stock markets after 31 84 32 1870. Was this also true, however, for other growth sectors later in the nineteenth 33 34 century? 35 36 In view of the evident barrier to regional firms accessing London finance 37 38 39 implied by the need to use elite directors, it is also worth exploring therefore whether 40 41 London and regional capital markets had complementary features offered considering 42 43 a fourth group of cases that sought finance from both. A leading example, was the 44 45 British Motor Syndicate (BMS), whose scale and complexity is explained by 46 47 Lawson’s objective of monopolising the sector. Substantively launched in November 48 49 50 1896, it was based on a new cluster of tyre, cycle and motor vehicle firms located in 51 52 the West Midlands. At first sight, the syndicate appeared to have considerable 53 54 similarity with the Hooley floats. Lawson has been commonly compared with Hooley, 55 56 and like Hooley also used Lords as directors, as noted in the prior literature. 85 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh24 Page 25 of 56 Business History
1 2 3 Aristocrats on the boards of firms associated with Lawson’s network included Lord 4 5 Norreys and Prince Ranjitsinhji on the Board of the BMS and in the subsidiary firms 6 7 the Lords Winchilsea (New Beeston Cycle), Hawke (Humber Portugal) and Verulam 8 9 86 10 (Accles). 11 12 However, these individuals were recruited more for their apparent celebrity 13 14 status andFor network Peerconnections than Review their aristocratic pedigree. Only Norreys was President 15 16 of the Road and Path Cycling Association and Ranjitsinhji a Cambridge student and 17 18 87 19 famous cricketer. Winchilsea, a politician and agricultural lobbyist, founded the 20 21 London to Brighton car race and was responsible for symbolically tearing up the red 22 23 warning flag at a dinner at the Metropole Hotel in Brighton following the 24 25 ‘Emancipation Day’ run; 88 an event also attended by Ranjitsinhji. Other famous 26 27 individuals listed as directors within the BMS combine included J.J. Henry Sturmey, 28 29 30 cycling publicist and founder of the Cycling Touring Club, Gottlieb Daimler 31 32 (Daimler), the inventor of the petrol engine, H.H Griffin, secretary of the National 33 34 Cyclists Union (Beeston Tyre Rim Co. Ltd) and the Hon. Evelyn Ellis (Daimler, 35 36 Great Horseless and Accles [trustee of debentures], who attracted great publicity as 37 38 89 39 the first person in England to drive a motor car. In these respects, Lawson’s network 40 41 was already broader than Hooley’s, comprising aristocratic but other well connected 42 43 individuals who could court publicity and generate significant lobbying power. 44 45 Lawson’s ambition for the syndicate also meant accessing and controlling 46 47 technical expertise. His network went therefore notably also included inventors and 48 49 50 patent holders. These included the consulting engineer Frederick R. Simms and also 51 52 influential individuals in associated industries, for example, H.J. Mulliner and 53 54 Thomas Robinson of the Brougham and Dunlop carriage making firm were on the 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh25 Business History Page 26 of 56
1 2 3 boards of BMS production divisions (London Electric Cab and Great Horseless 4 5 Carriage respectively).90 6 7 A final feature of Lawson’s BMS network was the exploitation of political 8 9 10 connections. Important names referred to in the prospectus of New Beeston Cycle 11 12 were brothers Arthur and Joseph Chamberlain. The latter was one of the foremost 13 14 politiciansFor of the time,Peer in Birmingham Review and nationally and Only the former a prominent 15 16 Birmingham businessman. 91 The brothers were also active investors in Quinton 17 18 92 93 19 Cycle. Lawson had formed New Beeston to acquire Quinton and the Chamberlain 20 21 brothers were listed as prominent Quinton shareholders, and by virtue of which, it was 22 23 implied, endorsed the reputation of the New Beeston. Such was the interpretation of a 24 25 correspondent to The Times, who pointed out that such disclosure was without the 26 27 approval of the individuals involved. Engineers and patent holders Holt and 28 29 94 30 Beaumont objected to the BMS prospectus on similar grounds. 31 32 Lawson’s motive in exploiting such a diverse network was, in part, to generate 33 34 positive publicity, particularly for the main float of the syndicate in November 1896. 35 36 The BMS float attracted a barrage of criticism from the financial press, which 37 38 95 39 undermined the issue. Press comments were scathing about the claimed value of 40 96 41 intangibles and lack of supporting financial information. It is certainly true that the 42 43 level of detail was far less than in Hooley’s Raleigh and DPTC floats.97 44 45 Much more important, however, was Lawson’s stated intention to monopolise 46 47 the nascent motor vehicle industry. The BMS was similar to a holding company, and 48 49 50 had the objective of holding patents and collecting royalties from associated 51 98 52 production divisions and third party licensees. Lawson’s strategy therefore went 53 54 beyond merely accessing the London market and also attempted to draw in regional 55 56 ownership networks. Lawson had already adopted the regional network model with 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh26 Page 27 of 56 Business History
1 2 3 his involvement in the pre boom Humber and Beeston companies99 and the absorption 4 5 of Quinton with the reputation and connections of the Chamberlains suited his 6 7 purpose ideally. Aristocrats, then, were useful to Lawson for reasons beyond access to 8 9 10 London financial markets. 11 12 Bearing in mind the context of the end of the boom and a declining share 13 14 marketFor after March Peer 1897 (figure 2), Review Lawson’s launch of the Only Amalgamated Pneumatic 15 16 Tyre Company (APTC) in July 1897 offers a case study of how aristocrats remained 17 18 19 important assets outside of ‘hot’ issue markets. He formed the APTC as a merger of 20 21 several firms, with the combination offered to London investors for £1.3m of new 22 23 capital. The Earl De la Warr, still also a director of DPTC, headed the list. Although 24 25 Lawson opted for a London listing, his motive in using De la Warr was not simply to 26 27 access the market as had occurred with previous issues. Apart from De la Warr, the 28 29 30 remaining directors were non aristocratic incumbents of the merged firms. As with 31 32 BMS, the purpose of the APTC was to dominate the tyre industry. The firm was 33 34 described as the ‘sister company’ to Dunlop and its strategy involved sharing the use 35 36 of the patents to put an end to fierce competition and litigation.100 The new firm was 37 38 39 not a success, and along with other cycle and tyre firms, experienced a slump in its 40 101 41 fortunes in the latter part of 1897. In summary, as APTC and BMS illustrate, unlike 42 43 Hooley, Lawson’s more ambitious objective of product market domination required 44 45 promotional and financial networks that went beyond aristocratic elites, involving 46 47 other groups of influential individuals in society, politics and the military. Using a 48 49 50 final group of cases, it therefore worth examining the role of similar connections, 51 52 beyond the Lawson network. 53 54 The absorption of socially connected individuals at important nodes of the 55 56 cycling network was commonly used in other cycle and related promotions. These 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh27 Business History Page 28 of 56
1 2 3 directors were sometimes well known, for example Warington Baden Powell, a 4 5 leading barrister and naval adventurer with celebrity status102 was a director of New 6 7 Premier Cycle Company. Many others were well connected in cycling networks and 8 9 10 their associated channels of publicity; examples included: William Henry Herbert, 11 12 President of the Cycle Manufacturers Association (New Premier), John McKnight 13 14 (TurnerFor Pneumatic PeerTyre), Secretary Review of the Irish Cyclists Association, Only and Sydney Lee, 15 16 editor of Cycle Trade Journal (Truffault).103 17 18 19 Political connections were a similarly important feature of Lawson’s syndicate 20 21 model, as illustrated by the Chamberlain example, but were less commonly used in 22 23 other promotions. Members of parliament were directors of a few firms, for example 24 25 Star Cycle (C.E. Shaw M.P.), Rudge Whitworth and Rover Cycle (Sir Frederick 26 27 Dixon Hartland MP).104 Cases of firms with politically connected directors featured in 28 29 30 specific networks for specific reasons. William Bromley Davenport MP, who was a 31 32 director of Elswick Cycles Company and the New Jointless Rim Company, also had a 33 34 distinguished military career. The Elswick board included two further military 35 36 directors (the Chairman, Captain Andrew Noble and Colonel Hans Hamilton), which 37 38 39 was perhaps unsurprising. Noble was previously the managing director of Lord 40 105 41 Armstrong’s armaments factory at Elswick, Newcastle. As a consequence perhaps, 42 43 the Elswick cycle firm did not need to go further and recruit aristocrats to secure 44 45 access to London capital markets. 46 47 Other firms’ prospectuses featured military connected directors, for example 48 49 50 New Premier (Warington Baden Powell and Col. C.E. Macdonald), and Anglo 51 106 52 Swedish (Cols. Cox and Fred. Hill), and in several other cases they served 53 54 alongside other directors who were aristocrats. Examples included Swift Cycle (Lord 55 56 Randolph Churchill and Major Walter Segreave), Howe Cycle and Sewing (Sir 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh28 Page 29 of 56 Business History
1 2 3 Edward Sullivan and Major General William Barwell–Barwell), Pneumatic Tube 4 5 Machine (Earl of Norbury and Maj Gen Henderson), and Clipper Pneumatic Tyre 6 7 (Lord Raglan and Lt Col. Seymour Blaydes).107 The board of Bagot Pneumatic Tyre 8 9 108 10 consisted entirely of aristocrats and military officers. The general rule, as in the 11 12 Lawson network, was that politicians and more especially military figures 13 14 complementedFor aristocrats, Peer although Review they were much less prevalent. Only 15 16 17 18 19 Conclusions 20 21 The grouping of cases in the above analysis reveals some useful comparisons 22 23 (illustrated by a typical example). In general, the evidence supports the conclusion 24 25 from the econometric analysis that, an aristocratic connection was vital for regional 26 27 industrial firms seeking access to the London capital market (Dunlop). Exceptions to 28 29 30 this rule demonstrated circumstances where such connections were necessarily 31 32 immaterial: firms which had pre existing alternative connections to London 33 34 (Claremont) and cases where regional firms consciously turned away from London 35 36 either as a result of a failed issue (Endurance) or as a means of retaining more local 37 38 39 control (Raleigh). Other large floats had ambition for monopolising the product 40 41 market and assembled large hybrid networks based in London and the regions, 42 43 comprising aristocrats but also celebrities, inventors and technicians, politicians, 44 45 military leaders (BMS), regardless of whether or not there was a ‘hot’ market for new 46 47 issues (APTC). Unlike aristocrats, who were essential for accessing London in the 48 49 50 absence of pre existing alternatives, these other classes of individual were never 51 52 sufficient for such purpose in their own right, but did play a complementary role 53 54 (Swift). 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh29 Business History Page 30 of 56
1 2 3 These roles are also illustrated by the results of our econometric analysis, 4 5 which reveals that aristocrats were specifically valued by promoters of larger firms 6 7 seeking formal approval for official quotation or special settlement from the London 8 9 10 Stock Exchange. Aristocratic directors dramatically improved the probability of 11 12 success for firms seeking formal access to the London stock exchange. They were less 13 14 importantFor for firms Peer with an informal Review London listing, suggestingOnly that unofficial 15 16 London quotes reported in the financial press for some regional firms mostly reflected 17 18 19 telegraphic shunting operations by brokers. Taken together, the econometric results 20 21 and case evidence provides strong support to the alternative interpretation: that 22 23 aristocrats provided access to a financial network that would otherwise be closed to 24 25 regional industrial firms. 26 27 The prevailing view hitherto, that aristocrats had no useful economic function, 28 29 30 can be traced to the events and recriminations immediately after the boom and the 31 32 collapse of Hooley’s financial schemes. It is noteworthy that although Hooley faced 33 34 the bankruptcy court two years after the Dunlop float, the Public Prosecutor took no 35 36 further action to investigate misdemeanours identified by the Official Receiver. 37 38 109 39 Lawson, by contrast, was convicted in 1904 and sentenced to a year’s hard labour. 40 41 Undoubtedly many of Hooley’s practices were questionable, and the real reason that 42 43 he escaped prosecution was his threat to disclose further information about his 44 45 dealings with members of the social elite.110 46 47 Although the cover up protected specific individuals, the role of aristocrats in 48 49 50 general dominated the post boom narrative. In considering further legislation to 51 52 prevent recurrence, Lord Russell, the incoming Lord Chief Justice commented that 53 54 through recent scandals, the law of limited liability had been brought into disrepute. 55 56 An important problem, according to Russell’s analysis, was overcapitalisation, where 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh30 Page 31 of 56 Business History
1 2 3 an ‘excessive price is obtained from the outside investor’ assisted by the use of 4 5 directors who provided only ‘worthless names and titles’, and ‘no knowledge of 6 7 business’ or ‘strength of government’. Russell argued that directors should not receive 8 9 10 payment from promoters and that this or similar conflicts of interest that might 11 111 12 prevent their exclusive service to shareholders should be disclosed. 13 14 ForThe evidence Peer in this paper Review suggests that Russell’s Only conclusion is worthy of 15 16 some reinterpretation. The names and titles were worthless indeed as far as 17 18 19 contributing to inflated share prices were concerned. Aristocrats appeared on boards 20 21 in ‘cold’ as well as ‘hot’ issue markets and did so in some cases outside the notorious 22 23 promotional syndicates of Hooley and Lawson. Comparing hot and cold issue markets 24 25 also shows that Hooley’s valuation of Dunlop in May 1896 reflected industry 26 27 realities, rather than an artificially inflated value based on the reputation of 28 29 30 aristocratic directors. Market efficiency was thus not compromised by any systematic 31 32 mispricing of the apparent value of aristocrats. The valuation ratios at the height of 33 34 the boom were reasonable in the light of profits and profit growth at the time and 35 36 were sustained for nearly a year after the floats. Subsequent overproduction was the 37 38 39 problem rather than initial overvaluation. Even after the cycle bubble burst, aristocrats 40 41 were used nonetheless in the BMS and APTC cases, to assist amalgamation with a 42 43 view to monopolising the trade. 44 45 Aristocrats were valuable then, not just in terms of the correlation between 46 47 social status and a sustainable share price, but as a means of accessing London based 48 49 50 financial networks and promoting financial restructuring aimed at securing scale and 51 52 market dominance. Moreover, the scope of their connections was certainly greater 53 54 than suggested in the prior literature. In his detailed review of aristocratic directors, 55 56 Harrison, notes that ‘only Albemarle and Norreys could claim any prior connection 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh31 Business History Page 32 of 56
1 2 3 with the cycle and tyre trades’.112 The evidence presented above shows that there 4 5 were many other previously undocumented important dimensions, and that aristocrats 6 7 were part of a deeper web, based in part on leading roles in nationally significant 8 9 10 clubs and societies associated with the cycle and pneumatic tyre industries. 11 12 Furthermore, they often enjoyed celebrity status beyond their mere title, or were in 13 14 social For networks that Peer connected them Review to celebrities. Non aristocratic Only celebrities were 15 16 used for similar reasons. In addition to aristocrats and celebrities, promoters also 17 18 19 recognised the value of including technical experts and patentees in their business 20 21 networks. They provided promoters with access to further positive publicity, which in 22 23 turn created a potentially positive response from investors. 24 25 Even in the Hooley floats, aristocrats played a positive role. Some of them, 26 27 like De la Warr persisted in their managerial and entrepreneurial roles, and were more 28 29 30 than merely ‘front sheeters’ or ‘guinea pigs’. For a narcissistic personality like 31 32 Hooley, the specific benefits included social status and access to high society. More 33 34 importantly, because the promotional methods used in terms of information included 35 36 and excluded in the prospectus helped undermine investors’ perceptions, the effect 37 38 113 39 was to further alienate the London market from industrial finance. 40 41 The social barriers symptomatic of this estrangement were of wider 42 43 significance for several reasons. First, they represented a potential problem for 44 45 industrial firms large enough to aspire for a London listing. Social connections were a 46 47 necessary condition before the bicycle boom, and made all the more difficult to 48 49 50 achieve as a consequence of it. In the interim, the problem was not serious where 51 52 issues were of modest scale and could be handled by regional stock exchanges. 53 54 However, rising returns to scale in industrial firms, increases in capital requirements 55 56 in regional clusters and limitations on adjacent pools of capital risked the emergence 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh32 Page 33 of 56 Business History
1 2 3 of a longer run constraint on economic growth. Second, the employment of aristocrats 4 5 to gain access to a market can be seen in terms of a transaction cost of doing business, 6 7 more easily payable in the absence of underwriting costs. 8 9 10 Until these alternatives were developed in the twentieth century, aristocratic 11 12 directors offered a resource role in terms of access to capital and social networks, 13 14 rather thanFor an overly Peer reputational roleReview in terms of signalling Only to the market. Even so, 15 16 further research could also examine the post IPO impact of aristocratic directors, in 17 18 19 terms of short run mispricing and their effects on longer run financial performance in 20 21 these industries, thereby complementing the wider literature on elite directors during 22 23 this period. Further research is also necessary to explore the pattern of elite directors’ 24 25 relational functions beyond the bicycle and related industries, particularly as the 26 27 equity gap began to open in the years before the Macmillan Report of 1931. Certainly, 28 29 30 aristocrats continued to feature in promotional booms in the 1920s, even though as a 31 32 social class, the aristocracy gained no real benefit from the earlier bicycle boom, 33 34 either in terms of reputation, or in terms of finding a new role in industry. As a 35 36 consequence, aristocrats were more likely to nurture financial connections than 37 38 39 become industrialists. On the other hand, for motives not just of social status, but also 40 41 for the purposes of accessing finance, industrialists continued to aspire to be 42 43 aristocrats and to join their social networks. 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh33 Business History Page 34 of 56
1 2 3 Sources 4 5 Aberdeen Weekly Journal 6 7 Birmingham Daily Post 8 9 10 British Parliamentary Papers (BPP) (1931), Committee on Finance and Industry, 11 12 Report. Cmd, 3897. London: HMSO. 13 14 BPP Hansard,For HC Debates,Peer Feb 1903, Review vol.118, cc.347 58. Only 15 16 Coventry History Centre (CHC), PA606, 1 47, Volumes sent to Daffern. Dunlop 17 18 st 19 Pneumatic Tyre Co, Ltd, Directors Report and Statement of Accounts 31 March
20 st 21 1897 and 31 March 1898. 22 23 Cycling 24 25 Daily News 26 27 Debrett‘s Essential Guide to the Peerage, http://www.debretts.com/people/essential 28 29 30 guide peerage/ranks and privileges peerage, visited 21/4/16. 31 32 Economist 33 34 Freeman‘s Journal 35 36 Financial Times 37 38 39 Glasgow Herald 40 41 Guildhall Library, Records of the London Stock Exchange, Applications for listing, 42 43 Report Books, MS29797, 1892 1898. 44 45 Liverpool Mercury 46 47 Morning Post 48 49 50 North-Eastern Daily Gazette 51 52 Pall Mall Gazette 53 54 The Standard 55 56 The Times 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh34 Page 35 of 56 Business History
1 2 3 Times Books of Prospectuses, 1892 1898 4 5 6 7 8 9 10 References 11 12 Acheson, G. G. and J. D. Turner. “Investor Behaviour in a Nascent Capital Market: 13 14 ForScottish Bank Peer Shareholders Review in the Nineteenth Centur Onlyy.” Economic History 15 16 Review, 64(1), 2011, 188 213. 17 18 19 Acheson, G. G., C. Coyle, and J.D. Turner. “Happy Hour Followed by Hangover: 20 21 Financing the UK Brewery Industry, 1880–1913.” Business History 58, no.5 22 23 (2015): 725 751. 24 25 Aldcroft D. H. and H. W. Richardson. The British Economy 1870 1939. London: 26 27 Palgrave Macmillan, 1969. 28 29 30 Amini, S., K. Keasey, and R. Hudson. “The Equity Funding of Smaller Growing 31 32 Companies and Regional Stock Exchanges.” International Small Business 33 34 Journal 30, no.8 (2010): 832 849. 35 36 Anon. The Hooley Book. The Amazing Financier: His Career and his —Crowd“. 37 38 39 London: John Dicks, 1904. 40 41 Armstrong, J. “The Rise and Fall of the Company Promoter and the Financing of 42 43 British Industry”. In: van Helten, J.J., Cassis, Y. (Eds.), Capitalism in a 44 45 Mature Economy: Financial Institutions, Capital Exports and British Industry, 46 47 1870œ1939. Aldershot: Edward Elgar, 1990, 115–138. 48 49 50 Braggion, F., and L. Moore. “The Economic Benefits of Political Connections in Late 51 52 Victorian Britain.” Journal of Economic History 73, no.1 (2013): 142 176. 53 54 Broadbridge, S. A. (1969). The sources of railway share capital. Newton Abbot: 55 56 David and Charles. 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh35 Business History Page 36 of 56
1 2 3 Burhop, C., D. Chambers, and B. Cheffins. “Regulating IPOs: Evidence from Going 4 5 Public in London, 1900–1913.” Explorations in Economic History 51, (2014): 6 7 60 76 8 9 10 Campbell, G., and J.D. Turner. "Dispelling the Myth of the Naive Investor during the 11 12 British Railway Mania, 1845–1846." Business History Review 86, no. 01 13 14 For(2012): 3 41. Peer Review Only 15 16 Campbell, G., M. Rogers, and J.D. Turner. “The Rise and Decline of the UK's 17 18 19 Provincial Stock Markets, 1869 1929.” QUCEH Working Paper Series, no.03, 20 21 2016. 22 23 Carter, R., and S. Manaster. “Initial Public Offerings and Underwriter 24 25 Reputation.” The Journal of Finance 45, no.4 (1990): 1045 1067. 26 27 Cheffins, B. R., D. K. Koustas, and D. Chambers. “Ownership Dispersion and the 28 29 30 London Stock Exchange's ‘Two thirds Rule’: An Empirical Test.” Business 31 32 History 55, no.4 (2013): 670 693. 33 34 Cheung, Y. L., L. Jing, P. R. Rau, and A. Stouraitis. “Guanxi, Political Connections, 35 36 and Expropriation: The Dark Side of State Ownership in Chinese Listed 37 38 39 Companies.” City University of Hong Kong working paper, (2005). 40 41 Conte Helm, M. Japan and the North East of England. London: Bloomsbury, 2012. 42 43 Cottrell, P. L. Industrial Finance, 1830-1914: The Finance and Organization of 44 45 English Manufacturing Industry. London: Methuen, 1980. 46 47 Davis, L. E., and R. E. Gallman. Evolving Financial Markets and International 48 49 50 Capital Flows: Britain, the Americas, and Australia, 1865œ1914. Cambridge: 51 52 Cambridge University Press, 2001. 53 54 Dimson, E., P. Marsh, and M. Staunton. Credit Suisse Global Investment Returns 55 56 Sourcebook 2014. Credit Suisse, 2014. 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh36 Page 37 of 56 Business History
1 2 3 Edelstein, M. “Realized Rates of Return on UK Home and Overseas Portfolio 4 5 Investment in the Age of High Imperialism.” Explorations in Economic 6 7 History 13, no.3 (1976): 283 329. 8 9 10 Fan, J. P., T. J. Wong, and T. Zhang. “Politically Connected CEOs, Corporate 11 12 Governance, and Post IPO Performance of China's Newly Partially Privatized 13 14 ForFirms.” Journal Peer of Financial Review Economics 84, no.2 (2007): Only 330 357. 15 16 Fich, E. M., and A. Shivdasani. “Financial Fraud, Director Reputation, and 17 18 19 Shareholder Wealth.” Journal of Financial Economics 86, no. 2 (2007): 306 20 21 336. 22 23 Fjesme, S., N. Galpin, and L. Moore. “The Vicar, the Widow, or the Gentleman: Who 24 25 Gets Allocated IPO Shares?” CIREQ working paper, Montreal (2016). 26 27 Foreman Peck, J., and L. Hannah. “Some Consequences of the Early Twentieth 28 29 30 Century British Divorce of Ownership from Control.” Business History 55, 31 32 no.4 (2013): 543 564. 33 34 Glinert, E. (ed.), The Savoy Operas: The Complete Gilbert and Sullivan, London: 35 36 Penguin, 2006. 37 38 39 Grossman, R. S., and M. Imai. “Taking the Lord's Name in Vain: The Impact of 40 41 Connected Directors on 19th Century British Banks.” Explorations in 42 43 Economic History 59, no.1 (2016): 75 93. 44 45 Gulati, R., and M. C. Higgins. “Which Ties Matter When? The Contingent Effects of 46 47 Interorganizational Partnerships on IPO Success.” Strategic Management 48 49 50 Journal 24, no 2 (2003): 127 144. 51 52 Hannah, L. The Rise of the Corporate Economy. Abingdon: Routledge, 2013. 53 54 Hannah, L. “Pioneering Modern Corporate Governance: A View from London in 55 56 1914.” Enterprise and Society 8, no3, (2007): 669 670. 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh37 Business History Page 38 of 56
1 2 3 Harrison, A. E. “The Competitiveness of the British Cycle Industry, 1890 4 5 1914.” Economic History Review 22, no.2 (1969): 287 303. 6 7 Harrison, A. E. “Joint stock Company Flotation in the Cycle, Motor vehicle and 8 9 10 Related Industries, 1882–1914.” Business History 23, no.2 (1981): 165 190. 11 12 Harrison, A. E. “F. Hopper and Co.—The Problems of Capital Supply in the Cycle 13 14 ForManufacturing Peer Industry, 1891–1914.” Review Business History Only 24, no.1 (1982): 3 23. 15 16 Helwege, J., and N. Liang. “Initial public offerings in hot and cold markets.” Journal 17 18 19 of Financial and Quantitative Analysis, 39(03), (2004): 541 569. 20 21 Higgins, M. C., and R. Gulati. “Stacking the Deck: The Effects of Top Management 22 23 Backgrounds on Investor Decisions.” Strategic Management Journal 27, no.1 24 25 (2006): 1 25. 26 27 Hillman, A., G. Keim, and R. Luce. “Board Composition and Stakeholder 28 29 30 Performance: Do Stakeholder Directors Make a Difference?” Business and 31 32 Society 40, (2001): 295–314. 33 34 Hooley, E.T. Hooley‘s Confessions, London: Simpkin Marshall, Hamilton and Kent, 35 36 1924. 37 38 39 Huse, M. “Accountability and Creating Accountability: A Framework for Exploring 40 41 Behavioural Perspectives of Corporate Governance.” British Journal of 42 43 Management 16, no.S1, (2005): S65 S79. 44 45 Jeal, T. Baden-Powell: founder of the boy scouts. Yale, Yale University Press, 2001. 46 47 Jones, G. “The Growth and Performance of British Multinational Firms before 1939: 48 49 50 The Case of Dunlop.” Economic History Review 37, no.1 (1984): 35 53. 51 52 Jones, L. J. Public Pursuit of Private Profit? Liberal Businessmen and Municipal 53 54 Politics in Birmingham, 1865–1900. Business History, 25(3), 1983: 240 259. 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh38 Page 39 of 56 Business History
1 2 3 Kennedy, W.P. “Notes on Economic Efficiency in Historical Perspective: the case of 4 5 Britain 1870–1914.” Research in Economic History 9, (1984): 109–41. 6 7 Kennedy, W. P. Industrial Structure, Capital Markets and the Origins of British 8 9 10 Economic Decline. Cambridge, Cambridge University Press, 1987. 11 12 Kimberley, D. Coventry‘s Motorcar Heritage, Stroud, History Press, 2012. 13 14 King, For F.H.H. “Sir Peer Robert Hart, Review 1835 1911.” Oxford Only Dictionary of National 15 16 Biography, Oxford: Oxford University Press, 2004. 17 18 19 Kynaston, D. The City of London: Vol. II Golden Years 1890-1914. London, Chatto 20 21 and Windus, 1995. 22 23 Lavington, F. The English Capital Market. London: Methuen, 1921. 24 25 Lewchuk, W. “The Return to Capital in the British Motor Vehicle Industry 1896– 26 27 1939.” Business History 27, no.1 (1985): 3 25. 28 29 30 Lloyd Jones, R., M.J. Lewis, and M. Eason. Raleigh and the British bicycle industry: 31 32 an economic and business history, 1870-1960. Scolar Press, 2000. 33 34 Loughran, T. and J. Ritter. "The New Issues Puzzle," Journal of Finance, 50, (1995): 35 36 23 51. 37 38 39 Lowry, M., and Schwert, G. W. “IPO market cycles: Bubbles or sequential 40 41 learning?” The Journal of Finance, 57(3), (2002): 1171 1200. 42 43 Megginson, W. L., and K. A. Weiss. “Venture Capitalist Certification in Initial Public 44 45 Offerings.” Journal of Finance 46, no.3 (1991): 879 903. 46 47 Michaely, R., and W. H. Shaw. “Does the Choice of Auditor Convey Quality in an 48 49 50 Initial Public Offering?” Financial Management 24, no.4 (1995): 15 30. 51 52 Michie, R. C. “Options, Concessions, Syndicates, and the Provision of Venture 53 54 Capital, 1880–1913.” Business History 23, no. 2 (1981): 147 164. 55 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh39 Business History Page 40 of 56
1 2 3 Millward, A. “The Cycle Industry in Birmingham, 1890 1920,” in Tilson, B. (ed.), 4 5 Made in Birmingham: Design and Industry, Warwick: Brewin, 1989. 6 7 Mizruchi, M., and L. Stearns. “A Longitudinal Study of the Formation of Interlocking 8 9 10 Directorates.” Administrative Science Quarterly 33, no.2 (1988):194–210. 11 12 Mosley, C. (ed.). Burke's Peerage and Baronetage, 106th edition, 2 volumes. Crans, 13 14 ForSwitzerland: Peer Burke's Peerage Review (Genealogical Books) LOnlytd, 1999. 15 16 Mouat, J., “Whitaker Wright, Speculative Finance and the London Mining Boom of 17 18 19 the 1890s.” In Durnett, R.E. (ed.), Mining Tycoons in the Age of Empire, 20 21 1870-1945. Farnham: Ashgate, 2009. 22 23 Newton, L. A. “The Birth of Joint Stock Banking: England and New England 24 25 Compared.” Business History Review 84, no.1 (2010): 27 52. 26 27 Nye, J. “The Company Promoter in London, 1877 1914”, University of London: PhD 28 29 30 thesis, 2012. 31 32 Oppenheimer P. M. “Hooley, Ernest Terah (1859–1947)”, Oxford Dictionary of 33 34 National Biography, Oxford University Press, 2004. 35 36 Reed, M.C. "Railways and the Growth of the Capital Market." In Reed, M.C. (ed.), 37 38 39 Railways in the Victorian Economy: Studies in Finance and Economic 40 41 Growth. Newton Abbot: David and Charles, 1969. 42 43 Richardson, K. The British motor industry 1896œ1939. London, Macmillan, 1977. 44 45 Robb, G. White-collar crime in modern England: financial fraud and business 46 47 morality, 1845-1929. Cambridge: Cambridge University Press, 2002. 48 49 50 Rutterford, Janette. “’Propositions Put Forward by Quite Honest Men’: Company 51 52 Prospectuses and their Contents, 1856 to 1940." Business History 53, no.6 53 54 (2011): 866 899. 55 56 Sampson, A. The Anatomy of Britain. London: Hodder and Stoughton, 1962. 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh40 Page 41 of 56 Business History
1 2 3 Storey R. A. “Lawson, Henry John (1852–1925),” Oxford Dictionary of National 4 5 Biography, Oxford: Oxford University Press, 2004. 6 7 Stratmann, L. Fraudsters and Charlatans: A Peek at Some of History's Greatest 8 9 10 Rogues. Stroud: The History Press, 2012. 11 12 Taylor, J. Boardroom scandal: the criminalization of company fraud in nineteenth- 13 14 Forcentury Britain Peer. Oxford, Oxford Review University Press, 2013. Only 15 16 Thompson, P. “The Pyrrhic Victory of Gentlemanly Capitalism: the Financial Elite of 17 18 19 the City of London, 1945 90” Journal of Contemporary History 32, no.3 20 21 (1997): 283 304. 22 23 Thomas, W.A. The provincial stock exchanges, Abingdon: Routledge, 2013 [1975]. 24 25 Toms, S., N. Wilson, and M. Wright. “The Evolution of Private Equity: Corporate 26 27 Restructuring in the UK, c. 1945–2010.” Business History 57, no.5 (2015): 28 29 30 736 768. 31 32 Turner, J. D., “Wider Share Ownership?: Investors in English Bank Shares in the 33 34 Nineteenth Century.” Economic History Review 62, no.1 (2009): 167 92. 35 36 UCLA, Statistical Consulting Group 37 38 39 http://www.ats.ucla.edu/stat/stata/dae/exlogit.htm (accessed 16th November, 2016). 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/fbsh41 Business History Page 42 of 56
1 2 3 4 5 6 1 Thompson, “The Pyrrhic Victory of Gentlemanly Capitalism,” 283 284. Sampson, 7 8 The Anatomy of Britain. 9 10 2 11 BPP, Committee on Finance and Industry, Report; Toms et al. “The Evolution of 12 13 Private Equity”, Amini et al. “The Equity Funding of Smaller Growing Companies.” 14 For Peer Review Only 15 3 Edelstein, “Realized Rates of Return”; Aldcroft and Richardson, The British 16 17 Economy, 119 20, Cottrell, Industrial Finance. 18 19 4 Davis and Gallman, Evolving Financial Markets, p.173; Kynaston, The City of 20 21 22 London, 149. 23 5 24 Oppenheimer, “Hooley, Ernest Terah (1859–1947)”; Storey “Lawson, Henry 25 26 John (1852–1925)”; Nye, “The Company Promoter”. 27 28 6 Hannah “Pioneering Modern Corporate Governance”; Armstrong “The Rise and Fall 29 30 31 of the Company Promoter”; Harrison, “Joint stock Company Flotation”; Stratmann, 32 33 Fraudsters and Charlatans. 34 35 7 Mizruchi and Stearns, “A Longitudinal Study”; Hillman et al. “Board Composition 36 37 and Stakeholder Performance.” 38 39 8 Brewing and the peerage (“Beerage”); see Acheson, et al., “Happy Hour Followed 40 41 42 by Hangover”, 741, 744; Guinness float by Barings 1886, Cottrell, Industrial 43 44 Finance, 169) 45 46 9 Fjesme, et al. “The Vicar, the Widow”, Lavington, The English Capital Market, 208. 47 48 10 Burhop et al. “Regulating IPOs.” 49 50 11 51 Grossman, and Imai, “Taking the Lord's Name in Vain.” 52 12 53 Kennedy, Industrial Structure; Armstrong, “The Rise and Fall of the Company 54 55 Promoter.” 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh42 Page 43 of 56 Business History
1 2 3 4 13 These critics included Gilbert and Sullivan, as parodied in Act I of their operetta, 5 6 The Gondoliers: “Guinea Pig” directors drew their fees in Guineas, but provided no 7 8 tangible return, see Glinert, The Savoy Operas. See also Gilbert’s Utopia Limited 9 10 11 cited in Hannah, The rise of the corporate economy. 12 14 13 Hannah, “Pioneering Modern Corporate Governance”, 669 670. 14 For Peer Review Only 15 15 Megginson and Weiss, “Venture Capitalist Certification”; Michaely, and Shaw, 16 17 “Does the Choice of Auditor Convey Quality in an Initial Public Offering”? Carter, 18 19 20 and Manaster, “Initial Public Offerings”. 21 16 22 Gulati, and Higgins, “Which Ties Matter When?” Higgins, and Gulati, “Stacking 23 24 the Deck.” 25 26 17 Fan, et al. “Politically Connected CEOs”; Cheung et al., “Guanxi, Political 27 28 Connections.” 29 30 18 31 Huse, “Accountability and Creating Accountability”. 32 33 19 Rutterford “Propositions Put Forward by Quite Honest Men.” 34 35 20 Fich and Shivdasani, “Financial Fraud.” 36 37 21 Kennedy, “Notes on Economic Efficiency.” 38 39 22 40 Braggion and Moore, “The Economic Benefits of Political Connections.” 41 23 42 Cheffins, Koustas, and Chambers, “Ownership Dispersion.” 43 44 24 Armstrong, “The Rise and Fall of the Company Promoter.” 45 46 25 Robb, White-collar crime in modern England, 38, 125, 200. The legal ruling (Re 47 48 City Equitable Fire Insurance Co [1925] Ch 407) that followed the Lee Bevan fraud, 49 50 51 for the first time suggested directors responsibilities could not be limited to those of 52 53 mere nominees. 54 55 26 Kynaston, City of London, 119. 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh43 Business History Page 44 of 56
1 2 3 4 27 Campbell et al, “Rise and Decline”; Newton, “The Birth of Joint Stock Banking”; 5 6 Thomas, Provincial stock exchanges; Foreman Peck and Hannah, “Some 7 8 Consequences”; Dimson, Marsh and Staunton, Credit Suisse. 9 10 28 11 Robb, White-collar crime in modern England, 114 115. 12 29 13 Flotations see Harrison, “Joint stock Company Flotation”; wider significance see 14 For Peer Review Only 15 Harrison, “The Competitiveness of the British Cycle Industry”; role of leading 16 17 company, Dunlop, see Jones, “The Growth and Performance”. 18 19 30 20 Jones, “The Growth and Performance.” 21 31 22 Lewchuk, “The Return to Capital” Michie, “Options, Concessions, Syndicates”. 23 24 32 Harrison, “F. Hopper and Co.”. 25 26 33 Lewchuk, “The Return to Capital”. For a detailed breakdown, see table 1, in 27 28 Harrison, “Joint stock Company Flotation”. 29 30 34 31 Calculated from tables I and III, in Harrison, “Joint stock Company Flotation”. 32 33 35 Payments ranged from £1,000 to £25,000. Harrison, “Joint stock Company 34 35 Flotation”, 174 175. 36 37 36 Only a small number of firms were involved in producing motor vehicles relative to 38 39 40 cycle producers at this time. The major boom in motor vehicle production occurred in 41 42 the early 1900s. See Lewchuk. “The Return to Capital”. 43 44 37 The most frequent and detailed listings were published in: Birmingham Daily Post, 45 46 Cycling, Freemans, Glasgow Herald, Liverpool Mercury, Pall Mall Gazette and from 47 48 1897, a more comprehensive list in the Financial Times. LSE Report Books are held 49 50 51 at the Guildhall library, London. 52 53 38 ‘Lord’ refers to a firm with a board member bearing any aristocratic title as listed in 54 55 Debrett’s Peerage of the United Kingdom, ie Duke, Marquess, Earl, Viscount, Baron; 56 57 also including holders of knighthoods. 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh44 Page 45 of 56 Business History
1 2 3 4 39 Using the exlogistic command in the Stata statistical program. For an overview, see: 5 6 UCLA, Statistical Consulting Group. 7 8 40 9 To facilitate interpretation, Panel B reports odds ratios rather than 10 11 coefficients. These can be interpreted as the probability of the outcome in the 12 13 presence of the variable of interest, relative to its absence. 14 For Peer Review Only 15 41 It should also be noted that the Financial Times only began the practice of quoting 16 17 share prices in columns headed London, Birmingham and Dublin from January 1897 18 19 20 onwards, thereby introducing an unavoidable time lag between the flotation of the 21 22 typical sample firm and its appearance in the Financial Times listings. 23 24 42 Campbell et al, “The rise and decline”, 7. 25 26 43 Further tests, controlling for year fixed effects, had no impact on the results and are 27 28 29 not reported. 30 44 nd 31 Financial Times, 2 Jan. 1897. 32 33 45 Financial Times, 2nd Jan. 1897. 34 35 46 These approaches are followed respectively by Loughran and Ritter, "The New 36 37 Issues Puzzle," and Lowry and Schwert, “IPO market cycles.” For an example of the 38 39 40 three month moving average method see: Helwege, and Liang, “Initial public 41 42 offerings in hot and cold markets.” 43 44 47 We also calculated an index initial returns weighted by capitalisation for the month 45 46 of the IPO. These returns were at their highest for the few firms that floated ahead of 47 48 49 the hot period as defined above. Returns persisted at a high level for 1896 and fell to 50 51 modest levels in the first three months of 1897. 52 53 48 Freeman's Journal, May 29, 1893. 54 55 49 “The Cycle Trade”, Daily News, 9 July 1897. 56 57 50 58 Hooley, Confessions. 59 60 URL: http://mc.manuscriptcentral.com/fbsh45 Business History Page 46 of 56
1 2 3 4 51 After the Dunlop deal, Hooley was described as the “Napoleon of Finance, at 5 6 whose word capital could be created by the million” (Economist, 30 July, 1898, 7 8 1113). 9 10 52 11 Calculated from historic profit data as disclosed in the DTPC prospectus (Times 12 13 Book of Prospectuses, Jan – Jun, 1896, 168 171) 14 For Peer Review Only 15 53 Estimated from Millward, “The Cycle Industry in Birmingham, 1890 1920,” tables 16 17 1and 2, 166. 18 19 54 20 For example the 200% dividend paid after the announcement of the 1893 results 21 th 22 (Freeman‘s 15 November, 1893). 23 24 55 DTPC prospectus (Times Book of Prospectuses, Jan Jun, 1896, 168 171) 25 26 56 Calculated from DTPC prospectus (Times Book of Prospectuses, 11th May, 1896, 27 28 168 171) 29 30 57 31 “A record rush for shares,” North-Eastern Daily Gazette May 14, 1896. 32 33 58 CHC, PA606, Dunlop Pneumatic Tyre Co, Ltd, Directors Report and Statement of 34 35 Accounts 31st March 1897. The accounts reported profits for the 11 months and 5 days 36 37 to 31st March; figures are adjusted pro rata. 38 39 59 40 Davis and Gallman, Evolving Financial Markets, 173 174. 41 60 42 Times Book of Prospectuses, Jan Jun, 1896, 168 171. Martin Diedrich Rucker took 43 44 the same number, and Robert Watson and Charles Wisdom Hely, who acted as 45 46 trustees for the debentures, took 33,333 and 66,666 respectively. Harvey and Arthur 47 48 Du Cros taking each taking 66,666 of each class. Of the controlling deferred shares 49 50 51 totalling £2m, this group thus controlled 16.67% of the equity issued 52 53 61 Gilbert George Reginald Sackville, 8th Earl De La Warr (1869–1915). 54 55 62 Anon. The Hooley Book, 54 55. 56 57 63 Cycling, May 30, 1896, 345; Issue 280. 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh46 Page 47 of 56 Business History
1 2 3 4 64 CHC, PA606, Dunlop Pneumatic Tyre Co, Ltd, Directors Report and Statement of 5 6 Accounts 31st March 1897, 31st March 1898. 7 8 65 For example one of the directors, the Earl of Crawford, was given responsibility of 9 10 11 briefing journalists on Hooley’s related activities (Pall Mall Gazette, Saturday, July 9, 12 13 1898); De la Warr described his role in overseeing allotments as “heavy” (Times, 14 For Peer Review Only 15 Aug. 13, 13). 16 17 66 Hooley Confessions, 43, 170. De la Warr sold land to Hooley. After Hooley 18 19 20 acquired the Papworth estate in Cambridgeshire he and De la Warr became close 21 22 neighbours (Anon. The Hooley Book, 34; Hooley, Confessions, 63) 23 24 67 Hooley Confessions, 74 79. 25 26 68 “Rigs and Corners”, Economist, 14 Aug. 1897, 1170 27 28 69 Hooley, Confessions, p.125, and 118 125. Hart (1835 1911) was a senior 29 30 31 diplomatic and trade representative with close connections to the Chinese government 32 33 (King, “Sir Robert Hart, 1835 1911”). 34 35 70 Mainly in mining and gold fields; Davis and Gallman, Evolving Financial Markets, 36 37 p.173. Hooley described Bottomley and Wright respectively as colleagues and 38 39 40 acquaintances (Hooley, Confessions, 293, 241). 41 71 42 Examples of firms promoted with aristocratic directors by Bottomley were the 43 44 Hansard Publishing Union and the West Australian and New Zealand Market Trust; 45 46 Wright promoted the London and Globe Finance Corporation. See respectively, 47 48 Financial Times, 6th April, 1889, 24th July, 1897, Mouat, “Whitaker Wright”, 136. 49 50 72 51 For example Coleridge J Kennard was a former member of parliament, Deputy 52 53 Lieutenant of London, and Justice of the Peace (Mosley, Burke‘s Peerage, vol.1, 54 55 1560). 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh47 Business History Page 48 of 56
1 2 3 4 73 Times Book of Prospectuses, Beeston Pneumatic Tyre Company, 26th June, 1893, 5 6 68. 7 8 74 Times Book of Prospectuses, The Cycle Industries Corporation, 13th May, 1896, 9 10 11 176. One of the firms it acquired, and which subsequently failed, was F. Hopper and 12 13 Co.; Harrison, “F. Hopper and Co.”, 4. 14 For Peer Review Only 15 75 At John Ward’s carriage works, Tottenham Court Road, London (Times Book of 16 17 Prospectuses, Jan June 1896, p.200). 18 19 76 20 The Ixion Tyre Company prospectus listed as directors Hiram S. Maxim, Albert 21 22 Vickers and George G. Hunt of the Britannia Iron Works, London; Times Book of 23 24 Prospectuses, 9th May, 1896, 159 160. Pall Mall Gazette, Friday, June 5, 1896. 25 26 77 Lloyd Jones et al., Personal capitalism, 31 27 28 78 “Mr Hooley’s affairs”, The Standard, 2nd August, 1896. Investors Review, 5th 29 30 31 August, 160. 32 33 79 GH Report Books, MS29797/11, Raleigh Cycle Co., 120; “Raleigh Cycle 34 35 Company”, Nottingham Evening Post, 16th October, 1900. 36 37 80 Lloyd Jones et al., Personal capitalism, 16, 36 37. 38 39 81 th 40 Times Book of Prospectuses, Raleigh Cycle Company, 7 March, 1896, 60; GH 41 42 Report Books, MS29797/11, Raleigh Cycle Company, 120. The capital floated was 43 44 £200,000 capital, the company having been sold to Hooley for £180,000 (“Hooley’s 45 46 affairs”, The Standard, 2nd August, 1898. 47 48 82 The most commonly used banks in our sample were Lloyds and London and 49 50 51 Midland. Prospectuses typically referenced the London and Birmingham branch 52 53 addresses of these banks. Times Book of Prospectuses, Raleigh Cycle Company, 7th 54 55 March, 1896, 60; and passim. 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh48 Page 49 of 56 Business History
1 2 3 4 83 “Try Again”, Pall Mall Gazette, 27th June 1896. Times Book of Prospectuses, The 5 6 Endurance Tube and Engineering Company, 26th June, 1896, 338. 7 8 84 Campbell et at, “The rise and decline of provincial stock markets”; railways see: 9 10 11 Broadbridge, “The Sources of Railway Share Capital”; Campbell and Turner, 12 13 “Dispelling the Myth of the Naive Investor”; Reed, “Railways and the Growth of the 14 For Peer Review Only 15 Capital Market”; regional joint stock banks, see: Acheson and Turner, “Investor 16 17 Behaviour in a Nascent Capital Market”, Newton, “The Birth of Joint Stock Banking’ 18 19 20 Turner, “Wider Share Ownership?” 21 85 22 Harrison, “Joint stock Company Flotation”; Robb, White collar crime, 104 106. 23 24 86 Times Book of Prospectuses, BMS, 30th November 1896, 284 285; New Beeston 25 26 16th June 1896, 294 295; Humber Portugal, 12th October, 1895, 173; Accles, 3rd June, 27 28 1896, 249. 29 30 87 th 31 ‘BMS, Times Book of Prospectuses, 30 November 1896, 284 285; Nicholson, The 32 33 Birth of the British Motor Car, 466) 34 35 88 So called in celebration of the removal of the warning red flag and lifting of the 4 36 37 m.p.h. speed limit (Richardson British motor industry, 16). Lawson’s success in the 38 39 40 event was referred to in the BMS prospectus, published shortly afterwards. Times 41 th 42 Book of Prospectuses, BMS, 30 November 1896, 284 285. 43 44 89 Death of Lord Winchilsea. The Times, Thursday, 8 September 1898, 6. Mr. Henry 45 46 Sturmey The Times, Friday, 10th Jan. 1930, 14. (Times Book of Prospectuses,), 47 48 90 British Motor Syndicate, Times Book of Prospectuses, Jul Dec 1896, 30th 49 50 51 November, 284 285; Richardson The British Motor Industry, 18) 52 53 91 Jones, “Public pursuit or private profit”, 240. 54 55 92; Birmingham Daily Post, 17th October, 1894. 56 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh49 Business History Page 50 of 56
1 2 3 4 93 Purchased for cash £8 6s 8d per £5 share by the Beeston Syndicate, Financial 5 6 Times, 5th May, 1896, 6. 7 8 94 Smith Pinsent and Co., solicitors, ‘New Beeston cycle company’: 5, Times, 18th 9 10 st 11 June, 1896, W. Worby Beaumont, Morning Post, 1 December, 7; Henry Holt, ‘A 12 st 13 disclaimer’, Financial Times, 1 Dec, 1896, 4. 14 For Peer Review Only 15 95 Kynaston, City of London, 147 16 17 96 “City notes”. Pall Mall Gazette, 28th Nov. 1896; “British Motor 18 19 20 Syndicate”. Economist, 28th Nov. 1896, 1569 21 97 th 22 Times Book of Prospectuses, Raleigh Cycle Company, 7 March, 1896, 60, and 23 24 DPTC, 11th May, 1896, 163 170. 25 26 98 The prospectus stated that objective of the syndicate was ‘to obtain a complete 27 28 monopoly…of all motor car patents deemed of any value’, Times Book of 29 30 th 31 Prospectuses, BMS, 30 November 1896, 285. On the inter relationships between the 32 33 Lawson companies, see Lewchuk, —The Return to Capital“, 7. 34 35 99 Times Book of Prospectuses Claremont Cycle Company, 17th June, 1896, 298; 36 37 Beeston Pneumatic Tyre was an example of an early pre boom London float, 38 39 40 promoted by Lawson, featuring aristocratic directors (Lord Henry Fitzgerald), patent 41 42 holders/inventors (Thomas Humber) and also military (Lt Col. Chas Hill, JP, 43 44 Coventry (Times Book of Prospectuses, Beeston Pneumatic Tyre Company, 26th June, 45 46 1893, 68 69). 47 48 100 The Standard, 16th August, 1897; “Formation of a sister company to the renowned 49 50 th 51 “Dunlop’”, The Standard, 14 August, 1897. The combination consisted of the 52 53 Beeston, Turner, Woodley, Scott’s Standard pneumatic tyre companies. 54 55 101 Economist, 4th January, 1899, 47. 56 57 102 Jeal, Baden Powell, 20 21 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh50 Page 51 of 56 Business History
1 2 3 4 103 Times Book of Prospectuses, New Premier Cycle Company, 2nd July 1896, 1 3 5 6 Turner Pneumatic Tyre Co. 3rd June 1893, 57, Dunlop Truffault Cycle and Tube 7 8 Manufacturing Company, 16th May, 1896, 187. 9 10 104 th 11 Times Book of Prospectuses, Star Cycle Company, 14 August, 1896, 345, Rudge 12 th 13 Whitworth, 1 5 November 1894, 77; Rover Cycle Company, 15 June, 1896, 290. 14 For Peer Review Only 15 105 Times Book of Prospectuses, The Elswick Cycle Company, 5th June 1896, 256 16 17 258; Conte Helm, Japan and the North East of England, 26. 18 19 106 nd 20 Times Book of Prospectuses, New Premier Cycle Company, 2 July 1896, 1 3; 21 22 Anglo Swedish Steel Tube Company, 23rd November 1896, 267 268, , 23 24 107 Times Book of Prospectuses, Swift Cycle Company, 11th December, 1896, 217; 25 26 Howe Cycle and Sewing Machine Company, 28th July, 1896, 113 115, Pneumatic 27 28 Tube Machine Company, 3rd April, 1897, 140 142; Clipper Pneumatic Tyre 29 30 th 31 Company, 15 March 1897, 103. On the Swift Cycle group of firms and Randolph 32 33 Churchill, see Kimberley, Coventry‘s motorcar heritage. 34 35 108 Times Book of Prospectuses, Bagot Pneumatic Tyre Company, 4th October, 1896: 36 37 201, listed the directors as the Earl of Aylesford, Lord Raglan, Col. Keyser, Lt Col. 38 39 40 Blaydes and Capt. Bagot. A Frenchman, M. Ernest Cuenod, the Paris delegate of the 41 42 Touring Club of France, was listed as due to join the board post floation. 43 44 109 Taylor, Boardroom Scandal, 255. 45 46 110 Anon., The Hooley Book, 150 152, cited several press commentators who drew 47 48 this conclusion, for example in the Daily Chronicle, and Freemans Journal. A 49 50 51 Sheffield Independent correspondent wrote: “Now, no august names will be 52 53 endangered, and…all risk of further prosecutions arising out of awkward revelations 54 55 is at an end”, ibid, 152. 56 57 111 Times, 10th November, 1898, 7. 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh51 Business History Page 52 of 56
1 2 3 4 112 Harrison, “Joint stock Company Flotation”, 174. 5 6 113 Kynaston, The City of London, notes several features of the problematic 7 8 relationship between industry and the City that ensued from the Hooley and Lawson 9 10 11 episodes, p.148. 12 13 14 For Peer Review Only 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 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/fbsh52 Page 53 of 56 Business History
1 2 3 Table 1. Predictors of London stock exchange listing applications 4 5 Panel A: Sample distribution 6 7 No. of flotations 8 9 Variable Yes No 10 London listing application 35 38 11 Lord on board 29 44 12 Patents under control 44 29 13 14 Tyre producerFor Peer Review 15 58 Only 15 Preference share 17 56 16 Debentures 15 58 17 41 18 London Head Office 32 19 20 21 Panel B: Exact logistic regression results 22 23 Variable Odds ratio P-value 24 25 Lord on board 7.5422 0.0005 *** 26 Patents under control 1.4635 0.6970 27 28 Tyre producer 1.2167 1.0000 29 Preference share 2.2144 0.3859 30 Debentures 1.2128 1.0000 31 London head office 1.0222 1.0000 32 33 Chi-square 15.8771 *** 34 Number of observations 73 35 Dependent variable is a 1/0 dummy variable indicating whether a firm made a London listing 36 application or not. Independent variables are 1/0 dummies according to the presence/absence of each 37 characteristic. Reduced form models were also estimated, including only the ”Lord on board‘ variable 38 and each of the other variables substituted in turn. In all models, only the ”Lord on board‘ variable was 39 significant. Non-asymptotic p-values are computed from the exact conditional distributions. 40 41 Panel C: Issue size mean difference tests 42 43 London Non London 44 listing listing p-value 45 Average equity capital raised (£) 375,270 129,790 0.0331** 46
47 48 Lord No Lord p-value 49 Average equity capital raised (£) 453,448 122.568 0.0232** 50 Number of observations: 73 51 52 *** Significant at the p< 0.01 level; ** Significant at the p<0.05 level 53 54 55 Sources: The Times Books of Prospectuses, 1893-1897; Guildhall Library, Records of 56 the London Stock Exchange, Applications for listing, 1893-1897. 57 58 59 60 URL: http://mc.manuscriptcentral.com/fbsh Business History Page 54 of 56
1 2 3 4 5 6 Figure 1: IPO volume 1893-1897 7 12 8 9 10 10 11 12 13 14 8 For Peer Review Only 15 16 17 6 18 19 20 4 21 22 23 2 24 25 26 0 27 28 29 Jul 1897 Jul Jul 1896 Jul Jul 1895 Jul Jul 1894 Jul Jul 1893 Jul Jan1897 Jan1896 Jan1895 Jan1894 Jan1893 Sep 1897 Sep Sep 1896 Sep Sep 1895 Sep Sep 1894 Sep Sep 1893 Sep Nov 1897 Nov Nov 1896 Nov Nov 1895 Nov Nov 1894 Nov Nov 1893 Nov Mar1897 Mar1896 Mar1895 Mar1894 Mar1893 May 1897May May 1896May May 1895May May 1894May 30 1893May 31 32 33 34 Source: Company prospectuses, Times Book of Prospectuses, Jan. 1893-Dec. 1897. 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/fbsh Page 55 of 56 Business History
1 2 3 4 5 Figure 2: Cycle and related industries share price index, 1893-1898 6 140 7 8 120 9 100 10 11 Index 80 12 (April 1896 = 100) 13 60 14 For Peer40 Review Only 15 16 20 17 0 18 19 20 21 22 23 Date 24 25 Cycle market index 26 27 Sources: Compiled using monthly observations from share listings in the Financial 28 Times, Birmingham Daily Post, Cycling, Freemans, Glasgow Herald, Liverpool 29 Mercury and Pall Mall Gazette. The market index includes all firms in the cycle, tyre 30 and related industries with actively traded shares, ie those that were regularly quoted 31 in in these publications (n=73; total observations 1459). 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/fbsh Business History Page 56 of 56
1 2 3 4 Figure 3: Dunlop share price index, 1893-1898 5 250 6 7 8 200 9 10 11 150 12 13 Index 14 (AprilFor 1896 = 100) Peer Review Only 15 100 16 17 18 50 19 20 21 0 22 23 24 25 26 Date 27 28 Pneumatic Tyre Co. Dunlop (DPTC) Cycle market index 29 30 Sources: As figure 2. 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/fbsh