The dark side of the result: self-financing and accounting choices within nineteenth-century French industry

Abstract

From the 1820s to the First World War, French industrial companies established their growth by self-financing. This paper describes the role of accounting in implementing such a financial policy. What seems easily achievable in family concerns is sometimes more difficult in joint stock companies. Thus, to obtain optimal retention of funds, the directors used the accounting tool to maximize the ‘hidden’ part of the profit. But some shareholders were not satisfied by the information delivered and the dividend policy adopted, as ‘secret’ reserves were not always really secret. By different ways, most investment expenses were immediately written off. Such accounting choices stem from an underlying accounting paradigm which gives pre-eminence to cash flow, an inheritance of charge and discharge accounting, which removes any significance of worth from the balance sheet. The accounting tool, which was both used for and shaped by self-financing, simply sanctioned financial decisions. The accounting entry does not express the economic nature of the operation, viz. investment, but its means of financing.

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