Ownership, Financial Strategy and Performance: The Lancashire Cotton Textile Industry, 1918-1938

Abstract

There has been a substantial debate about the benefits rationalisation might have conferred on British manufacturing during the interwar years. One industry which has featured prominently is the Lancashire cotton-textile industry. This article assesses the validity of John Maynard Keynes’ claim that the industry failed to restructure because the banks as debt holders prevented firms exiting the industry, creating persistent over-capacity. Since the 1980s, more recent literature has noted an association between block shareholdings and successful corporate restructuring. Despite the prominence of block shareholdings in the Lancashire case, their role has attracted little attention as a potential counterweight to the dominance achieved by the Keynesian narrative in the historiography of cotton, notwithstanding the concerns of other inter-war commentators about the role of financial syndicates and ‘unsound finance’. The paper uses archival evidence to investigate the composition of share ownership and develops hypotheses to test the role of particular types of block holding. The results show that syndicates of local shareholders, not the banks, were an important impediment to the exit of firms. Moreover, syndicates milked firms of any profits through dividends, thereby limiting reinvestment and re-equipment possibilities. Our theoretical results show that where laissez-faire fails in response to a crisis, incumbent investors, particularly block-holders, can be an important impediment to corporate restructuring.