New issues, New Industries and Firm Survival in Interwar Britain

David Chambers
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David Chambers: University of Oxford

No 7002, Working Papers from Economic History Society

Abstract: "Was the London Stock Exchange (LSE) little more than a Dickensian den of speculation, or did it make a contribution to industrial development in interwar Britain? Drawing on a new database covering approximately 1400 IPOs on the London Stock Exchange between 1919 and 1938, I show that the new issues market made a material contribution to the financing of capital investment in manufacturing industry, and more than was typical of modern UK corporate finance. However, the new manufacturing industries financed little more of their capital investment from IPOs than did the rest of manufacturing in the interwar period. Since these industries had the most need of external equity finance and were the most vulnerable to asymmetric information problems, they were ultimately the most constrained by the weak disclosure, inadequate investor protection and ineffective underwriting which characterised the interwar period. This weak institutional environment also manifested itself in the disastrous IPO survival rates of the late 1920s. When issue activity rebounded strongly in the following decade, there was a dramatic improvement in survival. This was, at least in part, due to the LSE recognising the need to fill the regulatory vacuum. The 1930s represents an early example of the “light touch” self-regulatory approach for which the LSE has subsequently become renowned."

JEL-codes: N00 (search for similar items in EconPapers)
Date: 2007-04
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