Profitability and capital accumulation in British industry during the transwar period, 1913–1924

Abstract

This article provides new information on profitability, taxation, and capital accumulation across the transwar period, based on an analysis of the accounting records of 30 companies in a range of industrial sectors. The main findings, that apparently high profitability in the war period was largely an illusion, and that the subsequent slump was very severe in its effects on business profitability, are consistent with views of the period as one of low capital accumulation. In effect, the generosity of the state's negotiating position towards capital owners during the war was cancelled out by the combined effects of inflation and of the severe postwar slump.

A Time Series for Business Profitability in Twentieth-Century Australia

“…Economists often prefer EBDIT as the most accurate measure of the price-cost margin. Further discussion of the relative merits of these alternative forms of measurement can be found in Gow and Kells (1998), Arnold (1999) …”

“…There is no indication, however, as to how widespread such practices were in Australia, nor that their incidence would bias results between industries or over time in such a way as to invalidate the large dataset used here. Evidence has been produced for Britain and Germany of underdeclaration of profitability in good years and overdeclaration in poor years, creating a cyclical smoothing effect rather than an upward or downward bias (Arnold 1999, p. 56, Napier 1991, Spoerer 1998. As reporting requirements became more extensive and consistent later in the century, so the corporation became a more complex and sophisticated organisation through multiple subsidiaries and joint ventures in particular, providing further challenges to honest and consistent reporting.…”

“…Our understanding of Australia's economic development in the twentieth century has been enriched by analyses that place it in a comparative context. Comparing a profitability series with those compiled for other countries will add to international benchmarks of Australian economic performance (Arnold 1999, Tafunell 2000, Marseille 1995, Tafunell and Carreras 2003, Spoerer 1996, Cassis 1997, and Cassis and Brautaset 2003. In addition, it will throw light upon the relationship, if any, between comparative profitability and inflows of foreign direct investment, which has been a key feature of Australian experience (Blainey 1984, Forster 1964, Brash 1966, Department of Trade and Industry 1966, 1971, Australian Bureau of Statistics 1986-7, and Wheelwright 1963).…”

Dividend Policies in an Unregulated Market: The London Stock Exchange 1895-1905

“…1 When dividends were paid, the …rm would deduct the relevant tax from the dividend and send it to the government, known as taxation at the source (see Arnold (1999)). Dividends and interest income were treated identically.…”

“…1 When dividends were paid, the …rm would deduct the relevant tax from the dividend and send it to the government, known as taxation at the source (see Arnold (1999) Most of the data we use in this analysis come from annual report and balance sheets of publicly quoted companies. The quality of information present in published accounts, and public statements of company o¢ cials during this time in the U.K. is arguably limited when compared to present day standards.…”