Please rotate your device to landscape mode to view the charts.

Was Marshall right? Managerial failure and corporate ownership in Edwardian Britain

Journal: The Journal of Economic History

Date: 2023

Author: Michael Aldous, Philip T. Fliers, John D. Turner

Abstract:
Alfred Marshall argued that the malaise of public companies in Edwardian Britain was due to the separation of ownership from control and a lack of professional management. In this paper, we examine the ownership and control of the c. 1,700 largest British companies in 1911. We find that most public companies had a separation of ownership and control, but that this had little effect on their performance. We also find that manager characteristics that proxy for amateurism are uncorrelated with performance. Ultimately, our evidence suggests that, if Marshall was correct in identifying a corporate malaise in Britain, its source lay elsewhere.

Link: Google Scholar

Background and Context

Research Question

The study examines whether Alfred Marshall was correct in his 1919 claim that British companies performed poorly due to separation of ownership from control and amateur management.

Data Sample

Analysis of ownership, control and performance of approximately 1,700 largest British companies listed on UK stock exchanges in 1911, representing about 45% of total market value.

Methodology

Examination of director ownership data, chairman characteristics, and company performance metrics including returns on assets, Tobin's Q, dividend yields and survival rates.

Widespread Separation of Ownership from Control in 1911

  • Only 8.1% of companies had majority director ownership (>50%)
  • Only 17% had substantial director ownership (>33%)
  • The average director ownership was just 17.2%
  • This shows ownership was largely separated from control, contrary to traditional views

Family Firms Had Higher Director Ownership But Were Not Dominant

  • Family firms represented 24.9% of the sample
  • Family firms had higher average director ownership at 29.6% vs 12.8% for non-family firms
  • Even in family firms, ownership was relatively dispersed

Ownership Structure Had Limited Impact on Company Performance

  • Ownership structure explained only 0.28-1.34% of performance variation
  • No significant difference in performance between concentrated and diffuse ownership
  • Contradicts both Marshall's view and traditional narratives about ownership impact

Chairman Characteristics and Firm Performance

  • Chairman characteristics explained more variation than ownership variables
  • Elite education and social status were not significantly related to performance
  • Suggests "amateur" management was not a key factor in company performance

Contribution and Implications

  • Challenges both Marshall's view that separation of ownership from control hurt performance and traditional views about family ownership dominance
  • Shows that ownership structure and management characteristics were not major determinants of company performance in Edwardian Britain
  • Suggests that explanations for British corporate underperformance must lie elsewhere, possibly in market structure or competitive environment

Data Sources

  • Ownership structure visualization based on Table 1 director ownership statistics
  • Family firm comparison based on Table 1 and discussion in text
  • Chairman characteristics based on Table 6 summary statistics
  • Performance impact visualizations based on variance decompositions in Tables 3 and 8
  • Chairman effects visualization based on variance decompositions in Table 8