Railpolitik: The Financial Realities of Operating Britain's National Railways

This article analyses the context and financial performance of Britain's national railways under private ownership in the first half of the 20th century and public ownership in the second half of the century, in order to understand the problems confronting the railways and the implications for privatization. The evidence shows that Railtrack's collapse was inevitable: it is impossible for the railway industry to generate the revenue to cover the full cost of the infrastructure and services, including the financial claims of the providers of capital, without jeopardizing network performance. Privatization could not resolve the external constraints and the consequent financial problems. The final section considers the implications of this analysis for the future of the industry.     

The Reliability of Reported Profits and Asset Values, 1890–1914: Case Studies from the British Coal Industry

Considering the vital importance of coal to the British economy before 1914, it is clear that accounting practices in the coal industry during the late nineteenth and early twentieth centuries have received too little attention. There is a particular need for studies comparable to the work on railways and iron and steel which has examined conventions for accounting for capital expenditure. Such conventions create serious difficulties in the interpretation of reported profits and asset values for historians of any industry and may also have misled contemporaries. Evidence for the coal industry which has been examined up till now has indicated that standard practice comprised a modified form of the replacement accounting used by railway companies. This paper examines the extent to which this supposition is justified. It concentrates on the accounting policies of five important colliery companies and on the effects of these policies on profits and the book values of fixed assets. Two principal conclusions have emerged. The first is that, although replacement accounting was certainly widespread, accounting policies were more complex and more diverse than has hitherto been suggested. The second is that it is frequently impossible for the historian to determine whether balance sheet values are indicative of capital employed. Both profits and asset values were in most cases highly unreliable.     

Privatisation and Franchising of British Train Operations

The Railways Act 1993 privatised the British railways industry resulting in the separation of ownership and control of the railway infrastructure (track, signals and stations) from that of passenger train operations. The Great North Eastern Railway (GNER), a major train operator, was unable to meet its contractual obligations shortly after successfully re‐tendering for its second franchise. By referring to the organisational form and structure of the franchising process, this paper discusses the main financial and operational problems that specifically contributed to the collapse of GNER. In particular, the paper argues that the fragmented structure of privatised train operations, the lack of industry coordination and the inherent problems of franchising an essential transport service explain the demise of GNER and have undermined the general objectives of railway privatisation. Overall, the paper highlights that privatisation of train services has failed to deliver both travelling benefits for the public and financial benefits to the state.     

Accounting's Motive Power - the Vision and Reality for Management Accounting on the Nationalised Railways to 1959

A financial crisis had engulfed the UK's nationalised railways by 1960. This, and the subsequent retrenchment identified with Dr Beeching, has obscured determined and coherent earlier attempts to install modern methods of management accounting on the nationalised railways in the 1940s and 1950s. This paper sets out the attempted development of these techniques which were sponsored by the highest level of railway management and the defeat of these attempts in practice by the railways' organisational structure and culture. The conclusion is reached that, to be effective, new administrative techniques have to operate in compatible organisational and power structures.     

'A Lot of Friction at the Interfaces': The Regulation of Britain's Privatised Railway System

This paper examines the regulation of privatised industries, especially the railways. It focuses on the regulation of the infrastructure company, Railtrack, which collapsed into insolvency less than six years after its flotation. It analyses in detail the establishment of a key interface in the railway system, the track access charges, and discusses the extent to which Railtrack's collapse was a failure of regulation. The paper concludes that the key problem was not the regulatory system, but the fundamentally flawed concept of the rail privatisation, and discusses the implications for the success of privatisation and of Railtrack's successor, Network Rail.     

Are related-party transactions beneficial or detrimental in emerging markets? New evidence of financial services agreements from China

This paper examines a new and underexplored form of related-party transactions in which Chinese listed companies sign financial services agreements with affiliated finance companies within the same business group. With FSAs, listed companies can readily finance through internal capital markets. However, some concerns controlling shareholders can use FSAs to embezzle funds of listed companies legitimately, thereby expropriating the wealth of minority shareholders. Using a staggered difference-in-differences model with fixed effects, we empirically examine the economic consequences of FSAs. We document that FSAs are detrimental to listed companies' market valuation and operating performance. This phenomenon mainly concentrates on companies without financial constraints and those with lower bankruptcy risks. Further analysis shows that sound corporate governance could inhibit the signing of FSAs ex-ante. This paper contributes to the literature on the economic consequences of related-party transactions in emerging markets. It also provides empirical support that the internal capital market of business groups in China is inefficient and offers controlling shareholders opportunities for tunneling.     

Executive performance-based remuneration, performance change and board structures

This paper examines CEO performance-based remuneration in companies that experience improvement in financial performance but have different board structures. It analyzes how such payment relates to change in financial performance and board structures by comparing the cases between Australian and Singaporean companies. The results highlight that performance pay in both countries is likely to be linked to change in performance. However, the proportion of CEO performance-based payment in both countries does not seem to be related to board structure. Larger firms in both countries appear to make great use of performance-based remuneration. Sales revenue is likely to be used by companies in both countries as a yardstick for determining CEO performance pay.     

Organizational Structure and Performance: Evidence From the Nonlife Insurance Industry in Japan

This study examines the impact of organizational structure on firm performance, incentive problems, and financial decisions in the Japanese nonlife (property‐casualty) insurance industry. Stock companies that belong to one of six horizontal keiretsu groups have lower expenses and lower levels of free cash flow than independent stock and mutual insurance companies. Keiretsu insurers also have higher profitability and higher loss ratios than independent insurers. With a limited sample size, there is some evidence that mutual insurers have higher levels of free cash flows, higher investment incomes, and lower financial leverage than their stock counterparts. Overall, empirical evidence suggests that each structure has its own comparative advantage.     

The beginnings of accounting for capital consumption: disclosure practices in the British railway industry, 1830–55

Accounting for capital consumption has been one of the most vexed issues in the history of financial reporting. The early railway companies, whose ability to exploit the commercial opportunities available to them required unprecedented levels of capital expenditure, provided the first real arena for the development of possible solutions to the problem. Although accounting practices in the industry were subject to little regulation, some writers have asserted the existence of regularities in depreciation and replacement accounting practices (possibly driven by economic self-interest), although the evidential basis for these assertions has been slight. This paper provides the first assessment of the capital consumption accounting practices of companies in the railway industry, and of their regularities and patterns of change during the period 1830–55. to be derived from a substantial empirical base.     

The Shifting of Directors' Duties in the Vicinity of Insolvency

Directors are obviously critical to the management of companies, and perhaps even more so when a company is in financial difficulties. This paper examines the position of directors when their company is in the vicinity of insolvency. It provides an analytical exposition of the law that exists in common law jurisdictions where, in the vicinity of insolvency, there is a shift in the nature of the duties of its directors, namely, directors have to take into account the interest of the creditors when exercising their powers and discharging their duties. The paper endeavours to identify and discuss the main problems that exist with this shift in the nature of duties so that if other jurisdictions do consider implementing it, they are aware of the drawbacks and may be able to address them. Copyright © 2015 INSOL International and John Wiley & Sons, Ltd