Managerial Failure in early Victorian Britain: Network and capital expansion during the Railway Mania

The British Railway Mania of the mid-1840s led to a massive expansion of the railway network, a socially beneficial legacy that however produced a collapse of profitability and dividends. Paradoxically, the majority of this expansion was carried out by established (and hitherto successful) railways, rather than Mania promotions. Campbell and Turner (2015) see this expansion as a rational, indeed optimal, response to the Mania: they would have been worse placed with alternative strategies. This paper contends that it was established railways which began the expansion in 1843–1844, and that the high returns they generated for their shareholders depended crucially on the rights issues that financed their projected lines. This helps to explain both shareholder support for expansion, and investor enthusiasm for Mania projections. But the new lines were unprofitable: the established railways’ expansionary strategy was a major managerial failure with, in the longer term, disastrous consequences for shareholders.