Concessionary Reversals and Dividend Policy: The Accounting for Public Aids in Spanish Railway Companies (1920-1930)
64 Pages Posted: 7 Jul 2020 Last revised: 3 May 2022
Date Written: May 3, 2022
We study dividend payments and earnings management in railway companies in the first decades of the 20th century. We argue that the historical organization of the Spanish railway industry as a complex net of 99-year concessionary contracts created predictable incentives for earnings management and rent extraction. The countdown to concessions reversals pressured the State, as residual owner, to subsidize the industry during the 1920s. The State granted two types of public aids to railway companies: to finance increases in wages, and to modernize railway material and infrastructure. We provide novel evidence on the regulation of these aids, their accounting, and their association with dividend payments. Overall, our evidence suggests that despite efforts from the State to establish maximum levels of earnings to report and of ‘permitted’ dividends, the reversal of concessionary contracts gave rise to a principal-principal agency conflict that trapped both the industry and the State and resulted in maximum dividends and equity depletion.
Keywords: Agency Theory, Concessionary regime, Dividend policy, Railway accounting choice, political bargaining
JEL Classification: M41, M48, N30
Suggested Citation: Suggested Citation