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Innovation in Urban Transit at the Start of the Twentieth Century: A Case Study of Metropolitan Street Railway’s Stealth Hostile Takeover of Third Avenue Railroad

Published online by Cambridge University Press:  28 October 2020

TIMOTHY A. KRUSE ,
STEVEN KYLE TODD Open the ORCID record for STEVEN KYLE TODD [Opens in a new window]  and
MARK D. WALKER
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Abstract

In 1900, a syndicate of investors used open market purchases and manipulative trading strategies to exploit an ongoing financial crisis at the Third Avenue Railroad Company and stealthily gain control of the company. The acquisition occurred during the first great merger wave in U.S. history and represented the street railway industry’s response to a new technology, namely electrification. The lax regulatory environment of the period allowed operators and insiders to profit handsomely and may have benefited consumers, but possibly harmed some minority shareholders. Our case study illuminates an unusual acquisition, when capital markets were less transparent.

Type
Article
Information
Enterprise & Society , Volume 23 , Issue 2 , June 2022 , pp. 357 - 407
Copyright
© The Author(s) 2020. Published by Cambridge University Press on behalf of the Business History Conference. All rights reserved

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References

Bibliography of Works Cited

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Atanasov, Vladimir, Black, Bernard S., and Ciccotello, Conrad S.. “Law and Tunneling.” Journal of Corporation Law, 37, no. 1 (2011): 1–49.Google Scholar
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Bebchuk, Lucien A. “Efficient and Inefficient Sales of Corporate Control.” Quarterly Journal of Economics, 109, no. 4 (1994): 957,993.CrossRefGoogle Scholar
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Durand, Edward D., and Martin, Thomas C.. Department of Commerce and Labor Special Reports: Street and Electric Railways 1902. Washington DC: Government Printing Office, 1905.Google Scholar
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Hansen, Per H. “From Finance Capitalism to Financialization: A Cultural and Narrative Perspective on 150 Years of Financial History.” Enterprise and Society, 15, no. 4 (2014): 605–642.CrossRefGoogle Scholar
Hawkins, David F. “The Development of Modern Financial Reporting Practices among American Manufacturing Corporations.” Business History Review, 37 (Autumn 1963): 135–168.CrossRefGoogle Scholar
Jensen, Michael C. “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76, no. 2 (1986): 323–329.Google Scholar
Jiang, Guolin, Mahoney, Paul G., and Mei, Jianping. “Market Manipulation: A Comprehensive Study of Stock Pools.” Journal of Financial Economics, 77, no. 1 (2005): 147–170.CrossRefGoogle Scholar
Johnson, Simon, LaPorta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei. “Tunneling.” American Economic Review Papers and Proceedings, 90, no. 2 (2000): 22–27.CrossRefGoogle Scholar
Jones, Charles M., and Owen, A. Lamont. “Short Sale Constraints and Stock Returns.” Journal of Financial Economics, 47, nos. 2–3 (2002): 207–239.CrossRefGoogle Scholar
Kahan, Marcel. “Sales of Corporate Control.” Journal of Law, Economics, and Organization, 9, no. 2 (1993): 368–379.Google Scholar
Katz, Wallace B. The New York Rapid Transit Decision of 1900. Historic American Engineering Record Survey Number HAER NY-122. Washington, DC: National Park Service, Department of the Interior, 1979, pp. 2–144.Google Scholar
Mahoney, Paul G. “The Stock Pools and the Securities Exchange Act.” Journal of Financial Economics, 51, no. 3 (1999): 343–369.CrossRefGoogle Scholar
Mitchell, Mark L., and Mulherin, J. Harold. “The Impact of Industry Shocks on Takeover and Restructuring Activity.” Journal of Financial Economics, 41, no. 2 (1996): 193–229.CrossRefGoogle Scholar
Morris, Eric. “From Horse Power to Horsepower.” Access, 30 (Spring 2007): 2–9.Google Scholar
Myers, Stewart C., and Majluf, Nicholas S.. “Corporate Financing and Investment Decisions when Firms Have Information That Investors Do Not Have.” Journal of Financial Economics, 13, no. 2 (1984): 187–221.CrossRefGoogle Scholar
Rutterford, Janette. “The Shareholder Voice: British and American Accents, 1890–1965.” Enterprise and Society, 13, no. 1 (2012): 120–153.CrossRefGoogle Scholar
Shleifer, Andrei, and Vishny, Robert. W.. “A Survey of Corporate Governance.” Journal of Finance, 52, no. 2 (1997): 737–783.CrossRefGoogle Scholar
Slipek, Edwin. “The Tycoon: The Story of Thomas Fortune Ryan, and His Legacy in Richmond.” Style Weekly, January 19, 2005, 14–18.Google Scholar
Smiley, Gene. “The Expansion of the New York Securities Market at the Turn of the Century.” Business History Review, 55, no. 1 (1981): 75–85.CrossRefGoogle Scholar
Speirs, Frederick W. “Regulation of Cost and Quality of Service as Illustrated by Street Railway Companies.” Annals of the American Academy of Political and Social Science, 15, no. 13 (1900): 63–76.CrossRefGoogle Scholar
Stedman, Edmund C, and Easton, A. N.. “The History of the New York Stock Exchange.” In The New York Stock Exchange: Its History, Its Contribution to National Prosperity, and Its Relation to American Finance at the Outset of the Twentieth Century, edited by Stedman, Edmund C., 15–410. New York: Stock Exchange Historical Company, 1905.Google Scholar
Walker, Mark D., and Yost, Keven. “Seasoned Equity Offerings: What Firms Say, Do, and How the Market Reacts.” Journal of Corporate Finance, 14, no. 4 (2008): 376–386.CrossRefGoogle Scholar
Brooklyn Daily Eagle Google Scholar
The Cosmopolitan Google Scholar
Everybody’s Magazine Google Scholar
Manual of Statistics Google Scholar
McClure’s Magazine Google Scholar
Munsey’s Magazine Google Scholar
New York Times Google Scholar
New York Tribune Google Scholar
Poor’s Manual of the Railroads of the United States Google Scholar
Street Railway Journal Google Scholar
The Sun Google Scholar
The Ticker Google Scholar
Wall Street Journal Google Scholar
The World Google Scholar
Manual of Statistics Company of New York. Manual of Statistics. New York, 1885–1915.Google Scholar
Milburn, John G., and Taylor, Walter F.. “Brief on Behalf of the New York Stock Exchange” to the Money Trust Investigation under the auspices of United States House of Representatives Resolution No. 504.Google Scholar
Poor’s. Poor’s Manual of the Railroads of the United States. New York, 1868–1924.Google Scholar
Amory, W. N. The Truth About Metropolitan. 2nd ed. Self-published pamphlet, 1906.Google Scholar
Baruch, Bernard M. My Own Story. New York: Henry Holt, 1957.Google Scholar
Beard, Patricia. After the Ball: Gilded Age Secrets, Boardroom Betrayals, and the Party That Ignited the Great Wall Street Scandal of 1905. New York: HarperCollins, 2003.Google Scholar
Burnley, James. Millionaires and Kings of Enterprise. London: Harmsworth Brothers, Limited, 1901.Google Scholar
Carman, Harry James. The Street Surface Railway Franchises of New York City. New York: Columbia University Press, 1919.Google Scholar
Cheape, Charles W. Moving the Masses. Cambridge, MA: Harvard University Press, 1980.Google Scholar
Franch, John. Robber Baron: The Life of Charles Tyson Yerkes. Champaign, IL: University of Illinois Press, 2006.Google Scholar
Haeg, Larry. Harriman vs. Hill: Wall Street’s Great Railroad War. Minneapolis: University of Minnesota Press, 2013.CrossRefGoogle Scholar
Hall, Henry. How Money Is Made in Security Investments or a Fortune at Fifty-Five. New York: De Vinne Press, 1907.Google Scholar
Hendrick, Burton J. The Age of Big Business: A Chronicle of the Captains of Industry. New Haven, CT: Yale University Press, 1921.Google Scholar
Hirsch, Mark D. William C. Whitney: Modern Warwick. New York: Dodd, Mead, 1948.Google Scholar
Hood, Clifton. 722 Miles: The Building of the Subways and How They Transformed New York. New York: Simon & Schuster, 1993.Google Scholar
Huebner, S. S. The Stock Market. New York: D. Appleton, 1922.Google Scholar
Most, Doug. The Race Underground: Boston, New York, and the Incredible Rivalry That Built America’s First Subway. New York: St. Martin’s, 2014.Google Scholar
Nelson, Ralph. Merger Movements in American Industry, 1895–1956. Princeton, NJ: Princeton University Press, 1959.Google Scholar
O’Sullivan, Mary. Dividends of Development: Securities Markets in the History of US Capitalism, 1866–1922. Oxford: Oxford University Press, 2016.CrossRefGoogle Scholar
Sobel, Robert. The Big Board: A History of the New York Stock Market. New York: Free Press, 1965.Google Scholar
Speirs, Frederic W. The Street Railway System of Philadelphia: Its History and Present Condition. Baltimore, MD: Johns Hopkins University Press, 1897.Google Scholar
Strouse, Jean. Morgan: American Financier. New York: Random House, 1999.Google Scholar
Swaine, Robert T. The Cravath Firm and Its Predecessor: 1819–1947. Clark, NJ: Lawbook Exchange, 2007.Google Scholar
Swanberg, W. A. Whitney Father, Whitney Heiress: Two Generations of One of America’s Richest Families. New York: Scribner’s, 1980.Google Scholar
Walker, James Blaine. Fifty Years of Rapid Transit, 1864 to 1917. New York: Law Printing Company, 1918.Google Scholar
White, Richard. The Republic for which It Stands: The United States during Reconstruction and the Gilded Age. 1865–1896. Oxford: Oxford University Press, 2017.Google Scholar
Allen, Franklin, Litov, Lubomir, and Mei, Jianping. “Large Investors, Price Manipulation, and Limits to Arbitrage: An Anatomy of Market Corners.” Review of Finance, 10, no. 4 (2006): 645–693.CrossRefGoogle Scholar
Allen, Franklin, Haas, Marline, Nowak, Eric, and Tengulov, Angel. “Market Efficiency and Limits to Arbitrage: Evidence from the Volkswagen Short Squeeze.” Swiss Finance Institute Research Paper No. 17-64. 2019. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2977019.Google Scholar
Andrade, Gregor, Mitchell, Mark, and Stafford, Erik. “New Evidence and Perspectives on Mergers.” Journal of Economic Perspectives, 15, no 2 (2001): 103–120.CrossRefGoogle Scholar
Armour, John, and Cheffins, Brian. “The Origins of the Market for Corporate Control.” University of Illinois Law Review, 2014, no. 5 (2014): 1835–1866.Google Scholar
Armour, John, and Cheffins, Brian. “Stock Market Prices and the Market for Corporate Control.” University of Illinois Law Review, 2016, no. 3 (2016): 761–820.Google Scholar
Atanasov, Vladimir, Black, Bernard S., and Ciccotello, Conrad S.. “Law and Tunneling.” Journal of Corporation Law, 37, no. 1 (2011): 1–49.Google Scholar
Banerjee, Ajeyo, and Woodrow Eckard, E.. “Why Regulate Insider Trading? Evidence from the First Great Merger Wave (1897–1903).” American Economic Review, 91, no. 5 (2001): 1329–1349.CrossRefGoogle Scholar
Bebchuk, Lucien A. “Efficient and Inefficient Sales of Corporate Control.” Quarterly Journal of Economics, 109, no. 4 (1994): 957,993.CrossRefGoogle Scholar
Bertrand, Marianne, and Mullainathan, Sendhil. “Pyramids.” Journal of the European Economic Association, 1, nos. 2–3 (2003): 478–483.CrossRefGoogle Scholar
Durand, Edward D., and Martin, Thomas C.. Department of Commerce and Labor Special Reports: Street and Electric Railways 1902. Washington DC: Government Printing Office, 1905.Google Scholar
Gorton, Gary, Kahl, Matthias, and Rosen, Richard J.. “Eat or Be Eaten: A Theory of Mergers and Firm Size.” Journal of Finance, 64, no. 3 (2009): 1291–1344.CrossRefGoogle Scholar
“Great American Fortunes and Their Making: Street Railway Financiers.” McClure’s Magazine , November 1907, 33–48.Google Scholar
“Great American Fortunes and Their Making: Street Railway Financiers—II.” McClure’s Magazine , December 1907, 236–250.Google Scholar
“Great American Fortunes and Their Making: Street Railway Financiers—III.” McClure’s Magazine , January 1908, 323–338.Google Scholar
Hansen, Per H. “From Finance Capitalism to Financialization: A Cultural and Narrative Perspective on 150 Years of Financial History.” Enterprise and Society, 15, no. 4 (2014): 605–642.CrossRefGoogle Scholar
Hawkins, David F. “The Development of Modern Financial Reporting Practices among American Manufacturing Corporations.” Business History Review, 37 (Autumn 1963): 135–168.CrossRefGoogle Scholar
Jensen, Michael C. “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76, no. 2 (1986): 323–329.Google Scholar
Jiang, Guolin, Mahoney, Paul G., and Mei, Jianping. “Market Manipulation: A Comprehensive Study of Stock Pools.” Journal of Financial Economics, 77, no. 1 (2005): 147–170.CrossRefGoogle Scholar
Johnson, Simon, LaPorta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei. “Tunneling.” American Economic Review Papers and Proceedings, 90, no. 2 (2000): 22–27.CrossRefGoogle Scholar
Jones, Charles M., and Owen, A. Lamont. “Short Sale Constraints and Stock Returns.” Journal of Financial Economics, 47, nos. 2–3 (2002): 207–239.CrossRefGoogle Scholar
Kahan, Marcel. “Sales of Corporate Control.” Journal of Law, Economics, and Organization, 9, no. 2 (1993): 368–379.Google Scholar
Katz, Wallace B. The New York Rapid Transit Decision of 1900. Historic American Engineering Record Survey Number HAER NY-122. Washington, DC: National Park Service, Department of the Interior, 1979, pp. 2–144.Google Scholar
Mahoney, Paul G. “The Stock Pools and the Securities Exchange Act.” Journal of Financial Economics, 51, no. 3 (1999): 343–369.CrossRefGoogle Scholar
Mitchell, Mark L., and Mulherin, J. Harold. “The Impact of Industry Shocks on Takeover and Restructuring Activity.” Journal of Financial Economics, 41, no. 2 (1996): 193–229.CrossRefGoogle Scholar
Morris, Eric. “From Horse Power to Horsepower.” Access, 30 (Spring 2007): 2–9.Google Scholar
Myers, Stewart C., and Majluf, Nicholas S.. “Corporate Financing and Investment Decisions when Firms Have Information That Investors Do Not Have.” Journal of Financial Economics, 13, no. 2 (1984): 187–221.CrossRefGoogle Scholar
Rutterford, Janette. “The Shareholder Voice: British and American Accents, 1890–1965.” Enterprise and Society, 13, no. 1 (2012): 120–153.CrossRefGoogle Scholar
Shleifer, Andrei, and Vishny, Robert. W.. “A Survey of Corporate Governance.” Journal of Finance, 52, no. 2 (1997): 737–783.CrossRefGoogle Scholar
Slipek, Edwin. “The Tycoon: The Story of Thomas Fortune Ryan, and His Legacy in Richmond.” Style Weekly, January 19, 2005, 14–18.Google Scholar
Smiley, Gene. “The Expansion of the New York Securities Market at the Turn of the Century.” Business History Review, 55, no. 1 (1981): 75–85.CrossRefGoogle Scholar
Speirs, Frederick W. “Regulation of Cost and Quality of Service as Illustrated by Street Railway Companies.” Annals of the American Academy of Political and Social Science, 15, no. 13 (1900): 63–76.CrossRefGoogle Scholar
Stedman, Edmund C, and Easton, A. N.. “The History of the New York Stock Exchange.” In The New York Stock Exchange: Its History, Its Contribution to National Prosperity, and Its Relation to American Finance at the Outset of the Twentieth Century, edited by Stedman, Edmund C., 15–410. New York: Stock Exchange Historical Company, 1905.Google Scholar
Walker, Mark D., and Yost, Keven. “Seasoned Equity Offerings: What Firms Say, Do, and How the Market Reacts.” Journal of Corporate Finance, 14, no. 4 (2008): 376–386.CrossRefGoogle Scholar
Brooklyn Daily Eagle Google Scholar
The Cosmopolitan Google Scholar
Everybody’s Magazine Google Scholar
Manual of Statistics Google Scholar
McClure’s Magazine Google Scholar
Munsey’s Magazine Google Scholar
New York Times Google Scholar
New York Tribune Google Scholar
Poor’s Manual of the Railroads of the United States Google Scholar
Street Railway Journal Google Scholar
The Sun Google Scholar
The Ticker Google Scholar
Wall Street Journal Google Scholar
The World Google Scholar
Manual of Statistics Company of New York. Manual of Statistics. New York, 1885–1915.Google Scholar
Milburn, John G., and Taylor, Walter F.. “Brief on Behalf of the New York Stock Exchange” to the Money Trust Investigation under the auspices of United States House of Representatives Resolution No. 504.Google Scholar
Poor’s. Poor’s Manual of the Railroads of the United States. New York, 1868–1924.Google Scholar