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Extractive institutions? Investor returns to Indian railway companies in the age of high imperialism

Published online by Cambridge University Press:  12 September 2019

Dan Bogart  and
Latika Chaudhary
Dan Bogart
Affiliation:
Department of Economics, University of California Irvine, Irvine, USA
Latika Chaudhary*
Affiliation:
Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, CA, USA
*
*Corresponding author. Email: lhartman@nps.edu
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Abstract

Did colonial policies in India deliver excessive returns to British investors? We answer this question using annual data on Indian securities trading on the London Stock Exchange. We present new series on market capitalization, capital gains, dividend yields, and total returns of railway securities from 1880 to 1929. The average annual total return on the largest and most important Indian railway securities was 3.7%. These returns were not excessive by any financial standard. Indeed, they were lower than the return on railway securities in North America, Latin America, and Asia. We also undertake an event study analysis to assess whether Indian railways significantly benefited British investors. When the Government of India purchased large positions in the private railway companies between 1880 and 1910, there were opportunities for profit making. However, we find no evidence of abnormal investor returns in the years leading to the purchase of railway companies. Broadly our findings call into question the extractive nature of colonial railway policy.

Keywords

Colonialismrailwaysmarket returnsLondon Stock Exchange
Type
Research Article
Information
Journal of Institutional Economics , Volume 15 , Issue 5 , October 2019 , pp. 751 - 774
Copyright
Copyright © Millennium Economics Ltd 2019 

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