The Impact of Publishing Financial Statements

By Samuel Phineas Upham

Along with the growth of the railroad came the birth of corporate finance statements. The late 1800s represented one of the first times American corporations had the ability to pursue bigger sources for financing and growth. The railroad offered investors hands-on experience with a potential company, where they could see how an operation was run and if it was worth investing. They could also check up on their progress, all in a matter of days and with certainty.

Financial statements were just the next logical step in that direction.

Attracting Capital

The balance sheet wasn’t any attempt at corporate self-regulation, it was a solicitation of sorts to investors. Balance sheets offered public accounting of how much money a company was making, which helped investors consider how they might shape a company in the future. The earliest balance sheets were little more than double-entry accounting, and meant strictly for the owners to assess health of the company. Corporate balance sheets were like the press friendly version of that double-entry accounting.

Although the influx of capital helped businesses grow, it also represented a small problem for owners who had never before dealt with others having a stake in their operations. The capital far outweighed the benefits long term, but the transitional period was full of mistrust on both sides.

This is one of the earliest and best examples of why regulation might help stimulate the economy. A lack of regulation created uncertainty. Railroads helped to bridge that gap, but the government had to step in formally at some point and create rules and regulations for formal investment and operations.

Samuel Phineas Uphamis an investor from NYC and SF. You may contact Phin on his Samual Phineas Upham website or Facebook page.