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Abstract
Who financed the great expansion of the Victorian equity market, and what attracted them to invest? Using data on 453 firm-years and over 172,000 shareholders, we find that the largest providers of capital were rentiers, men with no formal occupation who relied on investment income. We also see a substantial growth in women investors as time progressed. In terms of clientele effects, we find that rentiers invested in large firms, whilst businessmen were the venture capitalists of young, regional enterprises. Women and the middle classes preferred safe investments, whilst financiers and institutional investors were speculators in foreign companies. Our results may help to explain the growth of new types of assets catering for particular clienteles, and the development of managerial policies on dividends and share issues.
Acknowledgement
Thanks to the Leverhulme Trust (grant number F/00203/Z) for financial support. Turner also wishes to thank Geoff Jones, Walter Friedman, and Harvard Business School for their hospitality at the outset of this project. Thanks to the archivists at the National Archives at Kew, the National Archives of Scotland, and the Guildhall Library for all their assistance.
Notes
1. On the growth of the equity market, see Michie, London Stock Exchange, 88–89. See Michie, Money, Mania and Markets; Thomas, The Provincial Stock Exchanges on the formation and growth of Scottish and provincial stock exchanges in the nineteenth century. Acheson et al., “Rule Britannia,” show that there was a substantial rise in the number of common equities traded on the London market after the liberalisation of company law in 1855/6 and 1862. Between 1862 and 1866, the number of listed common equity securities increased by over 30%. Grossman, “New Indices,” reveals that the number of common equities quoted in the Investor’s Monthly Manual doubles between 1870 and 1900.
2. See Edelstein, Overseas Investment; Pollard, “Capital Exports”; Kennedy, Industrial Structure; O’Rourke and Williamson, Globalization and History, chap. 12; Goetzmann and Ukhov, “British Overseas Investment”; Chabot and Kurz, “That’s Where the Money Was”; Grossman, “Bloody Foreigners”. Davis and Huttenback, Mammon and the Pursuit of Empire; Edlinger et al., “Optimal World Portfolio”; Clemens and Williamson “Wealth Bias.”
3. Rutterford et al. “Who Comprised,” have considered whether such factors may have influenced female investors.
4. The 1855 Limited Liability Act (18 & 19 Vict., c.113) was repealed, but re-enacted in 1856 (19 & 20 Vict., c.47). Limited liability was introduced in banking in 1858 (21 & 22 Vict. c.91). Finally, the 1862 Companies Act (25 & 26 Vict. c.89) was a consolidation of existing pieces of incorporation legislation. See Cottrell, Industrial Finance; Taylor, Creating Capitalism and Shannon, “The Limited Companies” on the liberalisation of incorporation law and the subsequent growth in company formation.
5. Davis and Huttenback, Mammon and the Pursuit of Empire provide an analysis of 79,994 investors in both domestic and foreign stock between 1883 and 1907. However, their analysis is only of very young firms and is mainly focused on foreign and colonial companies. Rutterford et al., “Who Comprised,” analysed a sample of 33,078 shareholdings between 1870 and 1935. However, their study focuses on female investors and on the period after 1900, with only 6127 shareholders in their 1870–1899 sub-sample.
6. Davis and Huttenback, Mammon and the Pursuit of Empire, 197–198, note that their study was constrained by data availability and they would have ideally measured the importance of each class of security to each group of holders by taking into account aspects such as dividend pay-out.
7. Jefferys, Business Organisation, 209; Jefferys, “The Denomination.”
8. See Davis and Huttenback, Mammon and the Pursuit of Empire; Armstrong, “The Rise and Fall of the Company Promoter,” 119–121; and Cottrell, British Overseas Investment, 28. On the yield of foreign and colonial equities, see Grossman, “Bloody Foreigners.”
9. Rutterford et al., “Who Comprised,” 174.
10. Coyle and Turner, “Great Reversal.”
11. Broadbridge, “Sources of Railway Share Capital”; Campbell and Turner, “Dispelling the Myth”; Pollins, “Finances”; Reed, “Railways,” Investment in Railways.
12. Anderson and Cottrell, “Capital Market”; Newton and Cottrell, “Female Investors”; Turner, “Wider Share Ownership”; Acheson and Turner, “Investor Behaviour.”
13. Acheson and Turner, “Investor Behaviour”; Newton, “The Birth of Joint-Stock Banking.”
14. Doe, “Waiting for Her Ship to Come in”; Green and Owens, “Gentlewomanly Capitalism”; Newton and Cottrell, “Female Investors”; Maltby and Rutterford, “Women and Wealth”; Rutterford and Maltby, “The Nesting Instinct,” and “The Widow, the Clergyman and the Reckless”; Rutterford et al., “Who Comprised.”
15. Davis and Huttenback, Mammon and the Pursuit of Empire, 195–220.
16. Michie, Guilty Money; Michie, “Gamblers, Fools, Victims or Wizards?”; Maltby and Rutterford, “Women and Wealth”; Preda, “Rise of the Popular Investor.”
17. Acheson et al., “Corporate Ownership and Control,” “Corporate Ownership,” “Active Controllers.”
18. Michie, London Stock Exchange, 88–89.
19. Ibid., 88–89.
20. Coyle and Turner, “Great Reversal.”
21. Green and Owens, “Gentlewomanly Capitalism?”
22. Campbell and Turner, “Dispelling the Myth,” 38.
23. Rutterford et al., “Who Comprised,” 178–179.
24. The archivists at the National Archives and National Archives of Scotland destroyed most annual ownership records and only preserved a sample. Our analysis suggests that for firms which have annual ownership records preserved, one year out of every 10 have been preserved in the archives.
25. Our sample is larger and much broader than that of Davis and Huttenback, Mammon and the Pursuit of Empire, 196, because: (1) our sample runs from the late 1850s up to 1902, whereas their sample runs from 1883 to 1907; (2) the focus of their sample is foreign and colonial companies, whereas our focus is much more balanced, with the result that we have many more domestic firms in our sample than they do; (3) their sample with 79,944 shareholders is less than half the size of ours; and (4) unlike Davis and Huttenback, we have multiple observations for some companies.
26. We found information on 5134 individuals who had been left uncategorised during the first stage of data entry. In 58% of cases, we identified a male occupation which had been deemed illegible at phase one of data input. In another 15% of cases, a title such as Major, MP, Dr or Reverend was appended to the shareholder’s name. A further 15% were shareholdings held by an executor, trust, administrator or a company. The remaining 12% of ‘missing’ shareholders were female and had not been classified as a spinster, widow or married woman in the original ownership files.
27. Allen, “A Theory of the Pre-modern British Aristocracy,” 301.
28. Best, Mid-Victorian Britain, 268–276.
29. Parliamentary Papers, “Census of England and Wales. 1891. Ages, conditions as to marriage, occupations, birth-places, and infirmities. Vol. III” (1893), 5.
30. Parliamentary Papers, “Occupations of the People (England and Wales) Enumerated in 1871, 1881, and 1891” (1895)
31. Parliamentary Papers, “Census of England and Wales. 1891. Ages, conditions as to marriage, occupations, birth-places, and infirmities. Vol III” (1893), 24.
32. Rutterford, “Learning From One Another’s Mistakes.”
33. On this court ruling, see McDonald, The Rule in Trevor v. Whitworth.
34. Acheson and Turner, “Investor Behaviour,” “Death Blow to Unlimited Liability”; Turner, “Wider Share Ownership.”
35. Armstrong, “The Rise and Fall of the Company Promoter,” 121; Thompson, English Landed Society, 307.
36. Acheson and Turner, “Investor Behaviour,” “Death Blow to Unlimited Liability”; Turner, “Wider Share Ownership.”
37. Turner, “Wider Share Ownership.”
38. Rutterford et al., “Who Comprised,” 169.
39. Rutterford et al., “Who Comprised,” 171.
40. Rutterford and Maltby, “The Widow, the Clergyman and the Reckless,” 120.
41. Grossman, “Bloody Foreigners,” 485–486, finds that foreign mining companies produced high returns, but were very risky securities.
42. See Michie, Money, Mania and Markets, 248–249, for a discussion on the speculative nature of mining stocks at this time and the security of stocks of utilities, banks and insurance companies. Grossman, “Bloody Foreigners,” 485–486 concurs with this view.
43. Similar to Davis and Huttenback, Mammon and the Pursuit of Empire, 200, we find that merchants were more likely to invest in foreign and colonial companies than other businessmen.
44. Davis and Huttenback, Mammon and the Pursuit of Empire, 200–202; Cain and Hopkins, “Gentlemanly Capitalists,” 3.
45. Grossman, “Bloody Foreigners,” 485, notes that foreign equities were more risky than domestic equities in this era.
46. Rutterford et al., “Who Comprised,” 174.
47. For the rise of the regional stock exchanges, see Killick and Thomas, “Provincial Stock Exchanges.”
48. On this trend see Newton, The Finance of Manufacturing, 181.
49. Jefferys, Business Organisation, 209.
50. Jefferys, Business Organisation, 220.
51. Jefferys, “The Denomination.”
52. See Acheson and Turner, “Investor Behaviour,” 198–199.
53. Women’s preference for safer investments may stem from their greater risk aversion. Economists have found that women exhibit greater risk aversion than men across a variety of activities and the reasons for this may be psychological, biological, social or some combination of all three (see Borghans et al., “Gender Differences”). In particular, several studies have found that women exhibit greater financial risk aversion than men (Bajtelsmit et al., “Gender Differences”; Dwyer et al., “Gender Differences”; Jianakoplos, “Are Women More Risk Averse?”). However, Schubert et al., “Financial Decision-making,” provide experimental evidence which suggests that women are not more risk averse when it comes to financial decision-making. For an historical perspective on risk and women, see Acheson and Turner, “Investor Behaviour”; Rutterford and Maltby, “The Nesting Instinct.”
54. Bid-ask spreads are usually the preferred measure for assessing the liquidity of a stock, but these are not available for most of our companies. To ensure that our measure performs well during our period we have taken all of the securities for which bid-ask spreads are reported in The Times in 1870, and calculated the size of the bid-ask spread as a proportion of the mid-price. We have then calculated our liquidity measure for each of these companies. This gives us 296 observations. We find a highly significant relationship between the bid-ask spread measure and our measure, with a t-statistic of -6.88, and a correlation of.-0.39 The negative sign indicates that a higher bid-ask spread is associated with a lower likelihood to trade using our measure. Although this analysis is based on a different sample of companies than is used in this article, it is suggestive that our liquidity measure is robust.
55. Barber and Odean, “Boys will be Boys,” find that in the 1990s men trade shares 45% more than women.
56. Jefferys, Business Organisation, 209; Jefferys, “The Denomination.”
57. Chambers and Esteves, “First Global.”