Extractive Institutions? Investor Returns to Indian Railway Companies in the Age of High Imperialism

Abstract

Did colonial policies in India deliver excessive returns to British investors? We answer this question using annual data on Indian securities trading on the London Stock Exchange. We present new series on market capitalization, capital gains, dividend yields, and total returns of railway securities from 1879 to 1929. The average annual total return on the largest and most important Indian railway securities was 3.7%. These returns were not excessive by any financial standard. Indeed, they were lower than the return on railway securities for other regions like North America, Latin America, and Asia. We also undertake an event study analysis to assess if Indian railways significantly benefited British investors. When the Government of India purchased large positions in the private railway companies between 1880 and 1910, there were opportunities for profit-making. However, we find no evidence of abnormal investor returns in the years leading to the purchase of railway companies. Broadly our findings call into question the extractive nature of colonial railway policy.