An Efficient Market? Going Public in London, 1891-1911

by Sturla Fjesme (Oslo Metropolitan University), Neal Galpin (Monash University Melbourne), Lyndon Moore (University of Melbourne)

This article is published by The Economic History Review, and it is available on the EHS website

 

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Antique print of the London Stock Exchange. Available at <https://www.ashrare.com/stock_exchange_prints.html>

The British at a disadvantage?
It has been claimed that British capital markets were unwelcoming to new and technologically advanced companies in the late 1800s and early 1900s. Allegedly, markets in the U.S. and Germany were far more developed in providing capital for growing research and development (R&D) companies whereas British capital markets favored older companies in more mature industries, leaving new technology companies at a great disadvantage.
In the article An Efficient Market? Going Public in London, 1891-1911 we investigate this claim by obtaining detailed investment data on all the companies that listed publicly in the U.K. over the period 1891 to 1911. By combining company prospectuses, which provide issuer information such as industry, patenting activity, and company age with those company’s investors we investigate if certain company types were left at a disadvantage. For a total of 339 companies (out of 611 new listings) we obtain share prices, prospectuses, and detailed investor information on name and occupation.

A welcoming exchange
Contrary to prior expectations we find that the London Stock Exchange (LSE) was very welcoming to young, technologically advanced, and foreign companies from a great variety of industries. Table 1 shows that new companies were from a great variety of industries, were often categorized as new-technology, and almost half of the companies listed were foreign. We find that 81% and 84% of the new and old technology firms that applied for an official quotation of their shares were accepted by the LSE listing committee, respectively. Therefore, there is no evidence that the LSE treated new or foreign companies differently.

Table 1. IPOs by Industry

  IPOs Old-Tech New-Tech Domestic Foreign
Banks and Discount Companies 4 4 0 0 4
Breweries and Distilleries 13 13 0 12 1
Commercial, Industrial, &c. 155 137 18 125 30
Electric Lighting & Power 11 0 11 9 2
Financial Land and Investment 23 23 0 2 21
Financial Trusts 12 12 0 8 4
Insurance 7 7 0 7 0
Iron, Coal and Steel 20 20 0 20 0
Mines 8 8 0 0 8
Nitrate 3 3 0 0 3
Oil 11 11 0 0 11
Railways 10 9 1 5 5
Shipping 3 3 0 3 0
Tea, Coffee and Rubber 48 48 0 0 48
Telegraphs and Telephones 3 1 2 1 2
Tramways and Omnibus 6 0 6 5 1
Water Works 2 2 0 1 1
Total 339 301 38 198 141

Note: We group firms by industry, according to their classification by the Stock Exchange Daily Official List.

We also find that investors treated disparate companies similarly. We find British investors were willing to place their money in young and old, high and low technology, and domestic and foreign firms without charging large price discounts to do so. We do, however, find that investors who worked in the same industry or lived close to where the companies operated were able to use their superior information to obtain larger investments in well performing companies. Together our findings suggest that the market for newly listed companies in late Victorian Britain was efficient and welcoming to new companies. We find no evidence indicating that the LSE (or its investors) withheld support for foreign, young, or new-technology companies.

 

To contact Lyndon Moore:  Lyndon.moore@unimelb.edu.au

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