The Railway Mania and Managerial Failure

Could it be that stock-market bubbles occur because managers and CEOs overexpand their businesses simultaneously in a hubristic and possibly irrational fashion? Or could it be that managers and CEOs expand their business simply to maintain incumbent positions? Along with my colleague Gareth Campbell, I have recently published a paper in Business History which addresses these very questions. The paper is entitled Managerial Failure in Mid-Victorian Britain?: Corporate Expansion during a Promotion Boom. An earlier version of the paper is available here and the paper's abstract is as follows:

This article examines the mid-1840s expansion of the British railway network, which was associated with a large deterioration in shareholder value. Using a counterfactual approach and new data on railway competition, we argue that the expansion of the railway companies, and their subsequent decline in financial performance, was not due to managerial failure. Rather, the promotion of new routes by established railways and mergers with other companies was part of a managerial strategy to maintain incumbent positions, and may have been preferable to not expanding whilst their competitors did.