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The transition to financial capitalism and its implications for financial reporting

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  • A.J. Arnold
  • S. McCartney

Abstract

Purpose - There are two main alternative explanations in the literature for the patterns of financial reporting during the period of the British Industrial Revolution (BIR). Rob Bryer sees the new social relations of production in which manufacturing entrepreneurs strove to increase the productivity of wage‐labour as leading to a distinct capitalist “calculative mentality”, focused on the return on capital employed; Dick Edwards argues from agency precepts that financial reporting emerged with the transition from “industrial” to “financial capitalism”. This paper aims to reappraise these theorisations using new archival evidence. Design/methodology/approach - Canals, the crucial transport network during the BIR, were owned by limited liability companies financed by outside investors, with clear separation of ownership and control, yet were not capitalist in Bryer's sense because their profits came from a form of rent (tolls on freight) not from the exploitation of wage‐labour. The paper reviews the financial statements of seven major English canals from the 1770s to the 1850s, and uses these findings as a basis for appraising the above‐mentioned theories. Findings - The financial statements of English canal companies do not distinguish profit or enable users to calculate rates of return on capital employed and so assess the performance of management. This sharply conflicts with agency theory but is consistent with Bryer's thesis. Originality/value - The paper contributes to the authors' understanding of how and why corporate financial reporting emerged, and the relationship between this process and the transition to the capitalist mode of production.

Suggested Citation

  • A.J. Arnold & S. McCartney, 2008. "The transition to financial capitalism and its implications for financial reporting," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 21(8), pages 1185-1209, October.
    • Handle: RePEc:eme:aaajpp:v:21:y:2008:i:8:p:1185-1209
    DOI: 10.1108/09513570810918805
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    References listed on IDEAS

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    1. Baskin,Jonathan Barron & Miranti, Jr,Paul J., 1997. "A History of Corporate Finance," Cambridge Books, Cambridge University Press, number 9780521555142, January.
    2. Bryer, R. A., 2005. "A Marxist accounting history of the British industrial revolution: a review of evidence and suggestions for research," Accounting, Organizations and Society, Elsevier, vol. 30(1), pages 25-65, January.
    3. Bryer, R. A., 1993. "The late nineteenth-century revolution in financial reporting: Accounting for the rise of investor or managerial capitalism?," Accounting, Organizations and Society, Elsevier, vol. 18(7-8), pages 649-690.
    4. Patterson, Margaret & Reiffen, David, 1990. "The Effect of the Bubble Act on the Market for Joint Stock Shares," The Journal of Economic History, Cambridge University Press, vol. 50(01), pages 163-171, March.
    5. Bryer, R. A., 2000. "The history of accounting and the transition to capitalism in England. Part two: evidence," Accounting, Organizations and Society, Elsevier, vol. 25(4-5), pages 327-381, May.
    6. Bryer, R. A., 2000. "The history of accounting and the transition to capitalism in England. Part one: theory," Accounting, Organizations and Society, Elsevier, vol. 25(2), pages 131-162, February.
    7. Pollard, Sidney, 1964. "Fixed Capital in the Industrial Revolution in Britain," The Journal of Economic History, Cambridge University Press, vol. 24(3), pages 299-314, September.
    8. S. McCartney & A. J. Arnold, 2002. "Financial reporting in the context of crisis: reconsidering the impact of the 'mania' on early railway accounting," European Accounting Review, Taylor & Francis Journals, vol. 11(2), pages 401-417.
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    Cited by:

    1. Janni Grouleff Nielsen & Rainer Lueg & Dennis van Liempd, 2019. "Managing Multiple Logics: The Role of Performance Measurement Systems in Social Enterprises," Sustainability, MDPI, vol. 11(8), pages 1-23, April.
    2. A. J. ARNOLD & S. McCARTNEY, 2011. "‘Veritable gold mines before the arrival of railway competition’: but did dividends signal rates of return in the English canal industry?," Economic History Review, Economic History Society, vol. 64(1), pages 214-236, February.
    3. Carnegie, Garry D. & McBride, Karen M. & Napier, Christopher J. & Parker, Lee D., 2020. "Accounting history and theorising about organisations," The British Accounting Review, Elsevier, vol. 52(6).

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