Railways and Underwriters 1880-1913

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The late 19th and early 20th century is characterised as a time of rising international integration in goods and financial markets. Sovereign and railway securities were the top-most avenues of British capital flows during 1880-1913. Railways were risky ventures characterised by high capital intensity, high upfront investments, long breakeven times and significant sunk costs, and were therefore structured as emergent Build-Operate-Transfer schemes, with both public and private shades in ownership and management. As a result of the characteristic nature of railway securities, governments had to mitigate significant severe information asymmetries in order to attract investment. A key means to achieve this was to employ reputable underwriters to raise railway financing on global stock exchanges. Underwriters acted as 'match-makers' between borrowers, investors and third parties like government (also acting as guarantors) and reduced information asymmetries by signalling their informed status or by acting as delegated monitors. By the end of nineteenth century, underwriters had an established market in sovereign securities, but their participation was even more critical to the success of railway securities. Investors paid close attention to the relationship between underwriters and borrowers especially under episodes of financial distress. In this context, and taking lead from Flandreau and Flores (2009), I argue that underwriters' market power and prestige guided investors to associate their name with safer products and built investor confidence in financing railway projects globally. In this background, the project aims to explores the under-researched role of underwriters, specifically the House of Barings in financing railways during 1880-1913. While I am already working on the evolution and shape of underwriter networks in railway financing over time during my Economic History Society Fellowship, I would extend this research in two directions.First, how did underwriters of railway issues behave during tranquil and crisis times? Arguably, shared financial intermediaries, underwriting both government and railway securities, can potentially have a detrimental effect during crisis episodes through possible spillovers from government to railways or vice versa. Exploring this question would highlight whether shared financial intermediaries acted as a channel for contagion during crisis times.Second, related to the above, what was the role of market-based solutions in the enforcement of railway debt contracts? Generally, bondholder committees improve market governance in terms of reducing the frequency of defaults and potential haircuts. In the aftermath of the Barings crisis of 1890, both sovereign and guaranteed railways were part of debt restructuring episodes in several Latin American nations such as Argentina, Uruguay and Venezuela. While research has focused on the relevance of market-based solutions for sovereign debt restructuring, debt of guaranteed railways has been neglected. Overall, analysing debt restructuring has implications for our understanding on how global financial architecture was shaped in the aftermath of the crisis.I will use the Stock Exchange Yearbook, the Investors Monthly Manual and a scarcely used resource, the correspondences and ledgers of Barings agents in Argentina to understand how the network of intermediaries behaved during different phases of the business cycle. The project contributes to the literature on the global history of capitalism, financial history and railway financing during 1880-1913 in two ways. First, it expands our understanding on the role of underwriters during 1880-1913 in railways which has exclusively focused on sovereign securities. Second, the project would give a better understanding on the role of underwriters during crisis episodes. In this vein, it would contribute towards understanding the channels that can potentially result in contagion.