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Ownership, Financial Strategy and Performance: The Lancashire Cotton Textile Industry, 1918-1938

40 Pages Posted: 22 Feb 2013  

David Higgins

University of York - The York Management School

Steve Toms

University of Leeds - Leeds University Business School (LUBS); University of Leeds - Division of Accounting and Finance

Igor Filatotchev

City University London - Sir John Cass Business School

Date Written: February 21, 2013

Abstract

There has been a substantial debate about the benefits rationalisation might have conferred on British manufacturing during the interwar years. One industry which has featured prominently is the Lancashire cotton-textile industry. This article assesses the validity of John Maynard Keynes’ claim that the industry failed to restructure because the banks as debt holders prevented firms exiting the industry, creating persistent over-capacity. Since the 1980s, more recent literature has noted an association between block shareholdings and successful corporate restructuring. Despite the prominence of block shareholdings in the Lancashire case, their role has attracted little attention as a potential counterweight to the dominance achieved by the Keynesian narrative in the historiography of cotton, notwithstanding the concerns of other inter-war commentators about the role of financial syndicates and ‘unsound finance’. The paper uses archival evidence to investigate the composition of share ownership and develops hypotheses to test the role of particular types of block holding. The results show that syndicates of local shareholders, not the banks, were an important impediment to the exit of firms. Moreover, syndicates milked firms of any profits through dividends, thereby limiting reinvestment and re-equipment possibilities. Our theoretical results show that where laissez-faire fails in response to a crisis, incumbent investors, particularly block-holders, can be an important impediment to corporate restructuring.

Keywords: Keynes, cotton, banks, syndicates, corporate restructuring

JEL Classification: G32, G35, L14, L67, N84

Suggested Citation

Higgins, David and Toms, Steve and Filatotchev , Igor, Ownership, Financial Strategy and Performance: The Lancashire Cotton Textile Industry, 1918-1938 (February 21, 2013). Available at SSRN: https://ssrn.com/abstract=2221984 or http://dx.doi.org/10.2139/ssrn.2221984

David Higgins

University of York - The York Management School ( email )

Sally Baldwin Buildings
Heslington
York, North Yorkshire YO10 5DD
United Kingdom

Steve Toms (Contact Author)

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Igor Filatotchev

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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