Taking Firms to the Stock Market: IPOs and the Importance of Large Banks in Imperial Germany, 1896–1913

31 Pages Posted: 16 Jan 2014

See all articles by Sibylle Lehmann

Sibylle Lehmann

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; Trinity College (Dublin) - Institute for International Integration Studies (IIIS)

Date Written: February 2014

Abstract

Large universal banks played a major role in Germany's industrialization because they provided loans to industry and thereby helped firms to overcome liquidity constraints. Previous research has also argued that they were equally important for the German stock market. This article provides quantitative and qualitative evidence that although the market for underwriters was dominated by a small oligopoly of six large banks, there was still perceptible competition, which kept fees and short‐run profits low. Another interesting finding presented here is the absence of a signalling effect to investors. Neither underpricing nor the one‐year performance was different for the IPOs issued by one of the Big Six. Thus, although the German IPO business was in the hands of a small oligopoly, investors did not benefit from the lack of competition. One explanation is that the quality of IPOs on the German stock market of the time was very good in general as a result of the competition between underwriters, but also as a result of the tight regulation of underwriting, which ensured the quality of all firms on the German stock market.

Suggested Citation

Lehmann, Sibylle, Taking Firms to the Stock Market: IPOs and the Importance of Large Banks in Imperial Germany, 1896–1913 (February 2014). The Economic History Review, Vol. 67, Issue 1, pp. 92-122, 2014. Available at SSRN: https://ssrn.com/abstract=2379792 or http://dx.doi.org/10.1111/1468-0289.12016

Sibylle Lehmann (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Trinity College (Dublin) - Institute for International Integration Studies (IIIS) ( email )

The Sutherland Centre, Level 6, Arts Building
Trinity College
Dublin 2
Ireland

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