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Corporate Ownership, Control, and Firm Performance in Victorian Britain

Journal: Journal of Economic History

Date: 20160301

Author: Acheson, Graeme G.; Campbell, Gareth; Turner, John D.; Vanteeva, Nadia

Abstract:
Scholars have long debated whether ownership matters for firm performance. The standard view regarding Victorian Britain is that family-controlled companies had a detrimental effect on performance. In this article, we examine this view using a hand-collected corporate ownership dataset. Our main finding is that it was not necessarily the broad structure of corporate ownership that mattered for performance, but whether family blockholders had a governance role. Large active blockholders tended to increase operating performance, implying that they reduced managerial expropriation. Contrastingly, we find that directors who were independent of large owners were more likely to increase shareholder value.

Link: Google Scholar

Background and Context

Time Period & Setting

Study examines corporate ownership and firm performance in Victorian Britain from 1862-1901, during a period of rapid industrialization and stock market development.

Research Question

Investigates whether family-controlled companies performed better or worse than companies with dispersed ownership in Victorian Britain.

Methodology

Analysis of hand-collected ownership data for 345 Victorian public companies, examining return on assets (ROA), Tobin's Q, and ultimate company outcomes.

Industry Distribution Shows Diverse Sample of Victorian Companies

  • Sample covers broad range of Victorian industries with Industrial & Commercial firms being largest sector
  • Financial sector well represented through Banks and Mortgage companies
  • Heavy industry represented by Iron, Coal & Steel companies

Active Blockholders Associated with Higher Operating Performance

  • Companies with active blockholders achieved 7.6% ROA versus 4.5% for those without
  • Suggests active blockholders were effective at monitoring management
  • Demonstrates significant economic impact of ownership structure on performance

Independent Directors Associated with Higher Market Valuations

  • Companies with more independent directors had 17% higher market valuations
  • Suggests investors valued the monitoring role of independent directors
  • Indicates importance of board independence in Victorian era

Ownership Concentration Impact on Company Survival

  • Most common outcome was merger (41% of companies)
  • Only 20% of companies experienced negative outcomes (court wound up or removed)
  • Shows relative stability of Victorian companies despite weak shareholder protections

Board Structure Across Industries Shows Governance Patterns

  • Financial institutions had larger boards than industrial companies
  • Insurance companies had the largest boards with average of 12.9 directors
  • Shows systematic differences in governance across industries

Contribution and Implications

  • Challenges view that family-controlled firms were detrimental to performance in Victorian Britain
  • Shows importance of active blockholders in reducing agency problems and improving operating performance
  • Demonstrates that independent directors provided valuable monitoring of large shareholders
  • Highlights how governance structures evolved differently across industries

Data Sources

  • Industry distribution chart based on Table 1
  • ROA comparison chart based on Table 5
  • Tobin's Q analysis based on Table 5
  • Company survival outcomes based on Table 1
  • Board structure analysis based on Table 2