The Demise of Investment-Banking Partnerships: Theory and Evidence
Oxford Financial Research Centre Working Paper
38 Pages Posted: 18 Oct 2005
Date Written: July 2004
Until 1970, the New York Stock Exchange prohibited public incorporation of member firms. After the rules were relaxed to allow joint stock firm membership, investment-banking concerns organized as partnerships or closely-held private corporations went public in waves, with Goldman Sachs (1999) the last of the bulge bracket banks to float. In this paper we ask why the Investment Banks chose to float after 1970, and why they did so in waves. Our explanation extends previous work which examined the role of partnerships in fostering the formation of human capital (Morrison and Wilhelm, 2003). We examine in this context the effect of technological innovations which serve to replace or to undermine the role of the human capitalist and hence we provide a technological theory of the partnership's going-public decision. We support our theory with a new dataset of investment bank partnership statistics.
Keywords: Partnership, human capital, collective reputation, investment bank, going-public decision
JEL Classification: G24, G32, J24, J41, L14, L22
Suggested Citation: Suggested Citation