The transition to financial capitalism and its implications for financial reporting : Evidence from the English canal companies

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.