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From Complementary to Competitive: The London and U.K. Provincial Stock Markets

Journal: Journal of Economic History

Date: 20200601

Author: Rogers, Meeghan; Campbell, Gareth; Turner, John

Abstract:
For many decades, there were stock exchanges operating in provincial cities across Britain. We analyze why companies listed on these markets and how this changed over time. We find that the provincial exchanges had traditionally been complementary to London, providing a trading venue for smaller regional companies. However, they gradually lost their uniqueness and were increasingly competing with London by listing similar stocks. Much of this change can be explained by shifts in industrial composition, leading to more companies being headquartered and listed in the capital and many of the remaining regional firms cross-listing in London to achieve certification.

Link: Google Scholar

Background and Context

Time Period

Study examines the evolution of British stock exchanges from 1869 to 1929, focusing on the relationship between London and provincial markets.

Data Source

Analysis based on the Investor's Monthly Manual (IMM), which reported where companies were "chiefly traded" across different exchanges.

Research Focus

Investigates why companies chose to list on provincial markets versus London, and how this changed as markets evolved from complementary to competitive.

Decline in Provincial-Only Listed Companies Over Time

  • Shows the dramatic rise in London-only listings while provincial-only listings declined
  • London listings grew steadily from 369 to 1,226 companies
  • Provincial-only listings peaked in 1889 but fell to just 145 by 1929

Regional Companies Strongly Preferred Provincial Markets

  • Companies headquartered outside London strongly favored provincial markets
  • 81% of regional companies traded on provincial exchanges
  • London-based and foreign companies overwhelmingly listed in London

Higher Liquidity on Provincial Markets Until 1920s

  • Provincial markets maintained higher liquidity than London until the 1920s
  • Liquidity advantage disappeared in the final decade
  • Loss of liquidity advantage contributed to provincial markets' decline

Cross-Listed Companies Were Significantly Larger

  • Companies listed on both markets were consistently larger
  • Provincial-only companies were typically the smallest
  • Size gap between listing types grew over time

Similar Governance Standards Across Markets

  • Little difference in governance requirements between markets
  • Provincial markets had similar or slightly higher standards in some areas
  • Governance requirements were not a major factor in listing decisions

Contribution and Implications

  • Provincial markets initially served a vital role by providing trading venues for regional companies
  • Their decline was driven by structural changes in the economy rather than competitive disadvantages
  • Modern exchanges need unique companies to differentiate themselves and remain viable

Data Sources

  • Companies Chart: Based on Table 2 showing number of companies by listing type
  • Regional Preference Chart: Based on Table 3 showing listing strategies by headquarters location
  • Liquidity Chart: Based on Table 6 showing average liquidity by market and decade
  • Size Chart: Based on Figure 2 showing median market capitalization by listing type
  • Governance Chart: Based on Table 8 showing average number of governance provisions