Financial Reconstruction and Industrial Reorganisation in Different Financial Systems: A Comparative View of British and Swedish Institutions during the Inter-War Period

Abstract

This essay provides a comparative perspective on the process of financial reconstruction and industrial reorganisation in the large-firm sector in inter-war Sweden and the UK. The behaviour of private banks is analysed during a period when their bargaining power is likely to have been transferred from the distressed firm to any of the external investors. In the UK and Sweden investors have traditionally been viewed as having respectively an arm's length approach towards industry and a control-oriented one. The hypothesis here is that the two financial systems were more similar than has conventionally been assumed. Besides protecting their claims, creditors in both countries became involved in the rationalisation of production which followed. This empirical study is limited to 24 large firms. However, the evidence suggests that whilst the Swedish system contained elements of the arm's length approach, the British investor's involvement in industrial transformation featured elements of control-orientation.