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Abstract
The role of ‘opaque’ networks are analysed within the context of an infant economy with low levels of corporate governance. A period of economic expansion is studied, documenting the effects of credit liberalisation. This article outlines the significance of networks, emerging business cliques, particularly around financial institutions and the interlocking directorates these affiliations allow. Their effects upon financial reporting, business credibility and its effects upon the network life cycle are considered. Market manipulation, the importance of monitoring in instances of unsophisticated governance structures and the agents used (but particularly local/national press) are all analysed.
Acknowledgements
I am very grateful to colleagues in Liverpool and at the Centre for Manx Studies; also Alan Franklin, Roger Sims and Wendy Thirkettle at the Manx National Heritage Library; to Martin Caley at the Isle of Man Treasury; and to the Isle of Man Government for funding this research into the Manx business community, of which this study is part.
Notes
1 Stone, “‘Sinister’ Auckland Business Cliques,” 29–45.
2 See Casson, Enterprise and Leadership, 177.
3 Carnevali, “‘Crooks, Thieves, and Receivers’,” 533–550.
4 Popp, Business Structure, Business Culture and the Industrial District.
5 Brief, “Depreciation Theory in Historical Perspective,” 737–739. Also see Ridley, The Origins of Virtue; Toms, “The Rise of Modern Accounting and the Fall of the Public Company,” 61–84.
6 Bowles and Gintis, “The Moral Economy of Communities,” 2.
7 Ben-Porath, “The F Connection,” 12–13.
8 Burt, “Fraternity and Business Networking in the British Non-Ferrous Metal Mining Industry,” 1.
9 Kroszner and Strahan, “Throwing Good Money After Bad?”
10 La Porta et al., “Related Lending,” 245–246.
11 See Bein and Calomiris, Emerging Financial Markets, 262.
12 See Economist, 5–11 Aug. 2000, 94–95.
13 See Edwards and Cox Edwards, Monetarism and Liberalization, 98–101.
14 Furman and Stiglitz, “Economic Crises,” 72.
15 Wood, “Great Crashes in History,” 98–109; Eichengreen, “The Baring Crisis in a Mexican Mirror.”
16 Espinosa and Russell, “The Mexican Economic Crisis,” 21–44.
17 Financial Times, ‘Kipper Smokers turn into Big Fish Offshore - Despite 20 Years of Success the Island Still Needs to Upgrade its Image,’ 5 Oct. 2005.
18 Financial Times, ‘Making the Most of Geography and Local Nationalism – The Island is Using Constitutional Position in the British Isles to Develop a Thriving Financial Services Sector to Offset its Falling Tourism,’ 5 April 1995.
19 Source material in constructing case studies, is based upon correspondence and minute books for the Isle of Man Bank, and in the absence of business archives for Dumbell's Bank, newspapers and the trade press.
20 Dumbell was charged with giving misleading information regarding notes issued by the Isle of Man Joint Stock Bank and in circulation. He was later arrested on suspicion of altering a security bond made out to the benefit of a building company, of which he was a partner. See Chappell, The Dumbell Affair, 22–26.
21 Isle of Man Bank Minute Book (hereafter IoMBMB), 14 February 1865.
22 See Chappell, The Dumbell Affair, 53–54.
23 It was stated that Alexander Hill, General Manager at the Isle of Man Bank had previously been an employee of Dumbell's Bank. Additional evidence cannot be found to corroborate this. Financial Times, 15 June 1900.
24 See Chappell, The Dumbell Affair, 75.
25 For information on the City of Glasgow Bank Crash see Collins, “The Banking Crisis of 1878,” 504–527; Collins, “English Bank Lending and the Financial Crisis of the 1870s,” 198–224; Tyson, “Scottish Investment in American Railways,” 387–416.
26 Koehn and Santomero, “Regulation of Bank Capital and Portfolio Risk,” 1235–1250; Kim and Santomero, “Risk in Banking and Capital Regulation,” 1219–1220.
27 Cottrell, Industrial Finance, 210–212. Collins, “English Bank Lending,” 206.
28 The Isle of Man Chemical Works owed £13,850 and no interest had been charged on the account since 1897. Liverpool Daily Post, 10 June 1900.
29 Morning Leader, 16 June 1900; Chappell, The Dumbell Affair, 80–82.
30 Wojnilower et al., “The Central Role of Credit Crunches in Recent Financial History,” 277.
31 Daily Graphic, 18 June 1900.
32 Rajan, “Why Bank Credit Policies Fluctuate,” 401.
33 Zeira, “Informational Overshooting,” 237–257.
34 Mishkin, “Understanding Financial Crises,” 32.
35 Manx Sun, 14 July 1888.
36 Manx Sun, 7 Nov. 1891.
37 Chappell, The Dumbell Affair, 80.
38 Manx Sun, 26 Nov. 1891.
39 Norris, Memories and Movements, 88. Defaulters named, Daily Mail, 26 July 1900.
40 Manx Sun, 15 June 1901.
41 Moore, A History of the Isle of Man, 728.
42 Manx Sun, 10 Feb. 1900.
43 Shrieves and Dahl, “The Relationship between Risk and Capital in Commercial Banks,” 456.
44 See Lamoreaux, Insider Lending, 12, 70. Newton, “Regional Bank-Industry Relations during the Mid-Nineteenth Century,” 68–69; Rajan, “Insiders and Outsiders,” 1367–1368; Cable, “Capital Markets, Information and Industrial Performance,” 118; Booth and Deli, “On Executives of Financial Institutions as Outside Directors,” 277–250.
45 Carnevali, “Between Markets and Networks,” 86; Akerlof and Romer, “Looting;” Johnson et al., “Tunnelling,” 22–27.
46 Meissner, “Voting Rules and the Success of Connected Lending,” 510.
47 Ibid.
48 Okazaki et al., “Measuring the Extent and Implications of Director Interlocking,” 1107.
49 Morning Post, 16 June 1900. Globe, 16 June 1900. Manchester Courier, 16 June 1900. Daily Chronicle, 18 June 1900.
50 Charumilind et al., “Connected Lending,” 183.
51 See Pearson, One Hundred Years of the Manx Electric Railway, 84–94.
52 Popp, “Governance at Points of Corporate Transition,” 346.
53 Toms, “The Rise of Modern Accounting,” 61.
54 Brief, “Depreciation Theory in Historical Perspective,” 737–739.
55 Kroszner and Rajan, “Is the Glass Steagall Act Justified?;” Kroszner and Rajan, “Organisation Structure and Credibility,” 478–479.
56 Ibid.
57 Toms and Wilson, “Scale Scope and Accountability,” 10.
58 Besley and Coate, “Group Lending,” 3.
59 Gössling, “Proximity, Trust and Morality in Networks,” 683.
60 Mona's Herald, 8 Nov. 1843.
61 Mona's Herald, 29 Nov. 1843.
62 Fisman, “Estimating the Value of Political Connections,” 1006; Johnson and Mitton, “Cronyism and Capital Controls,” 380.
63 See Ralfe, Sixty Years of Banking, 22.
64 Collins and Hudson, “Provincial Bank Lending,” 69–70; also see Hudson, The Genesis of Industrial Capital, 219–220.
65 Chui et al., “Corporate Groups, Financial Liberalisation and Growth.”
66 Mitton, “A Cross Firm Analysis of the Impact of Corporate Governance,” 217.
67 Manx Sun, 13 April 1967.
68 An article headline that appeared in the Manx Sun, Oct. 12 1872.
69 Isle of Man Bank Correspondence Book (hereafter IoMBCB), 28 July 1880. The headings are administrative groupings of two divisions known as North and South Side. Each division once had its own capital, chief and law officers. Although the island became a united kingdom, the two primary divisions were still served by two Deemsters, or chief law officers, the Northern and Southern Deemster, they became known as the First (Northern) and Second (Southern) Deemster.
70 Harrison, “Sherwood in Manx Politics,” 359.
71 Gössling, “The Price of Morality,” 124–125.
72 Isle of Man Times, 10 Nov. 1883.
73 Caprio, “Banking on Crises,” 16–17.
74 See Manne, Insider Trading and the Stock Market, 148–149.
75 Benabou and Laroque, “Using Privileged Information to Manipulate Markets,” 921.
76 Sobel, “A Theory of Credibility,” 557.
77 Manx Sun, 10 Nov. 1888.
78 Vishwanath and Kaufmann, “Towards Transparency in Finance and Governance,” 26.
79 See Chappell, The Dumbell Affair, 94.
80 Chakraborty and Yilmaz, “Informed Manipulation,” 132.
81 Akerlof and Romer, “Looting,” 1–73; Johnson et al., “Tunnelling,” 22–27.
82 Tomka, “Interlocking Directorates between Banks and Industrial Companies in Hungary,” 38.
83 IoMBCB, 8 Dec. 1900.
84 Collins, “The Banking Crisis of 1878,” 525–526; Baker and Collins, “Financial Crises and Structural Change,” 433; Baker and Collins, “English Commercial Bank Liquidity,” 171–191.
85 See Norris, Memories and Movements, 100.
86 Rajan, “Insiders and Outsiders,” 1367–1368.
87 Milward and Raab, “Dark Networks as Problems,” 430–432.
88 IoMBMB, 4 March 1891.
89 Kandel and Lazear, “Peer Pressure and Partnerships,” 801.
90 IoMBMB, 24 Nov. 1886.
91 IoMBMB, 15 Feb. 1893.
92 IoMBMB, 12 July 1893.
93 IoMBMB, 18 March 1891.
94 Ghatak, “Screening by the Company You Keep,” 628.
95 Conning, “Outreach, Sustainability and Leverage,” 53–54.
96 IoMBMB, 18 May 1887. Indeed, the first, and one of the more high profile bankruptcies to emerge after the crash was Thomas Clague, MHK for Peel, grocer and boatowner, who owed £18,000, also E.T. Christian MHK, another Peel Man. Chappell, The Dumbell Affair, 104–106. Also see Norris, Memories and Movements, 87–88. Dumbell's Peel Branch testified that he had become unnerved in 1888 by several large overdrafts. These continued to grow, and on asking Bruce in 1897 whether he should refuse further cheques on these accounts, Bruce denied there was any problem. Daily Graphic, June 18 1900.
97 Backus et al., “Liquidity and Contagion in Financial Markets,” 4.
98 Having emphasised the pernicious impact of the bank crash upon the Isle of Man throughout his book, Chappell does write a ‘Retrospective’ of little more than a page asserting that economic recovery was relatively swift. See Chappell, “In Retrospect,” 120–121. See Birch, The Isle of Man, 26; Chappell, The Dumbell Affair, 4; Norris, Memories and Movements, 87–88. Winterbottom provides tentative suggestion that effects of the crash might have been overplayed: Winterbottom, “Economic History,” 231.
99 IoMBMB, 27 April 1898.
100 IoMBMB, 23 Nov. 1898.
101 IoMBMB, 22 March 1899.
102 Schumacher, “Bank Runs and Currency Run in a System without a Safety Net,” 275–276; Acharya and Yorulmazer, “Information Contagion and Inter-Bank Correlation in a Theory of Systemic Risk,” 31.
103 Conversations with Roger Rawcliffe, who recalls the story told to him by his mother-in-law.
104 MNH Deed, May 1900, No.107.
105 Caunce, “Banks, Communities and Manufacturing in West Yorkshire textiles,” 112–113.
106 Carnevali, “‘Malefactors and Honourable Men’,” 206.
107 Cookson, “Quaker Networks and the Industrial Development of Darlington,” 173.
108 Wilson and Popp, “Conclusion,” 278.
109 Toms and Filatotchev, “Networks, Corporate Governance and the Decline of the Lancashire Textile Industry,” 81–87.
110 Newton, “Capital Networks in the Sheffield Region,” 154.
111 Carnevali, “Between Markets and Networks;” Newton, “Regional Bank-Industry Relations”.