Unquoted Companies

The research reported in this book has sought the answer to three questions about unquoted companies in the United Kingdom today:

The vast majority of companies in the United Kingdom are unquoted. That is to say, their equity shares are not quoted in any Stock Exchange listing, and cannot therefore be traded in a Stock Exchange as are the shares of quoted companies. This difference could have far-reaching consequences for the ownership, management control, financing and development of unquoted companies, as well as potentially important implications for their efficiency. Yet very little is known about the behaviour and performance of these companies, or about their contribution to the UK economy as a whole. Surprisingly little has been written which specifically focuses on their functioning, and few comparisons with quoted companies exist. There is virtually no recent work.

The purpose of this chapter is to draw on some of the previous research on the unquoted sector in the United Kingdom to provide a background for the subsequent analysis of the book. There are two strands in this literature. The first concerns itself particularly with small firms. The most comprehensive work in this area was done by the Bolton Committee of Inquiry on Small Firms.¹ While much of this literature is very interesting, it is important to reiterate at the outset that it is somewhat tangential to our main interests. It is certainly true that all small companies are likely to be unquoted, but not all unquoted companies are small. Since our focus is on the problems faced by all unquoted business, the small-firm literature is too restricted in scope. This is not merely an academic point. ‘Small firms’ are identified as a particular problem for policy, and a certain amount of legislative preference already exists (e.g. the lower rate of corporation tax on taxable profits less than a certain figure, or the exemption from VAT for small traders). The logic of applying these benefits to a rather ill-defined small-business sector only makes sense if it can be shown that the problems are related exclusively to size. This is far from being self-evident. The second strand of literature is of more interest to us. It basically aims to compare the performance, and business and legal environment of different kinds of firms.

This chapter makes quantitative estimates of the share of the unquoted company in such national aggregates as gross national and domestic income, employment and gross domestic fixed capital formation. The availability of data has constrained us to make 1975 the benchmark year for the work. Wherever possible, the analysis has been compared with results obtained for other years, but the core of the work is centred on 1975.

The previous chapters attempted to identify the contribution to the United Kingdom economy of the unquoted sector as a whole. In contrast this chapter focuses on the behaviour of individual unquoted companies and tries to bring out at company level those issues which most influence their actions. As far as possible it goes behind published accounts to examine the specific factors which make for differences of performance as compared with quoted companies, and provides a basis for more detailed statistical comparisons in the next two chapters.

In this chapter we set out the characteristics of unquoted companies in relation to their quoted counterparts and assess the relative performance of the two types of company.

This chapter sets out to explore systematic differences in financial characteristics between quoted and unquoted companies. In the process it attempts to identify the financial constraints which the two groups face, the efficiency with which they obtain finance and the implications for overall performance and policy.