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

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  • Sibylle H. Lehmann

    () (University of Hohenheim)

Abstract

Large universal banks played a major role for Germany’s industrialisation because they provided loans to the industry and thereby helped firms to overcome liquidity constraints. Previous research has also argued that they were equally important on the German stock market. The present paper 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 of the paper 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 caused by the competition between underwriters, but also by the tight regulation of underwriting, which ensured thequality of all firms on the German stock market.

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File URL: http://ehes.org/EHES_No26.pdf
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Bibliographic Info

Paper provided by European Historical Economics Society (EHES) in its series Working Papers with number 0026.

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Length: 53 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:hes:wpaper:0026

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Keywords: Financial History; Universal Banks; IPOs;

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  1. Timothy Guinnane & Ron Harris & Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2007. "Putting the Corporation in its Place," NBER Working Papers 13109, National Bureau of Economic Research, Inc.
  2. Michaely, Roni & Shaw, Wayne H, 1994. "The Pricing of Initial Public Offerings: Tests of Adverse-Selection and Signaling Theories," Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 279-319.
  3. Gelman, Sergey & Burhop, Carsten, 2008. "Taxation, regulation and the information efficiency of the Berlin stock exchange, 1892–1913," European Review of Economic History, Cambridge University Press, vol. 12(01), pages 39-66, April.
  4. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
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Cited by:
  1. Prados de la Escosura, Leandro, 2013. "World Human Development: 1870-2007," CEPR Discussion Papers 9292, C.E.P.R. Discussion Papers.

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