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Is Regulation Essential to Stock Market Development? Going Public in London and Berlin, 1900-1913

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  • Carsten Burhop

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn and University of Cologne)

  • David Chambers

    ()
    (Judge Business School, University of Cambridge)

  • Brian Cheffins

    ()
    (Faculty of Law, University of Cambridge)

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    Abstract

    This study of initial public offerings (IPOs) carried out on the Berlin and London stock exchanges between 1900 and 1913 casts doubt on the received “law and finance” wisdom that legally mandated investor protection is pivotal to the development of capital markets. IPOs that resulted in official quotations on the London Stock Exchange performed as well as Berlin IPOs despite the Berlin market being more extensively regulated than the laissez faire London market. Moreover, the IPO failure rate on these two stock markets was lower than it was with better regulated US IPOs later in the 20th century.

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    Bibliographic Info

    Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2011_15.

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    Date of creation: Jul 2011
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    Handle: RePEc:mpg:wpaper:2011_15

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    Related research

    Keywords: Regulation; Financial history; Law and finance; initial public offering; investor protection;

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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    2. Fohlin, Caroline, 2002. "Regulation, taxation and the development of the German universal banking system, 1884 1913," European Review of Economic History, Cambridge University Press, Cambridge University Press, vol. 6(02), pages 221-254, August.
    3. Julian Franks & Colin Mayer & Hannes Wagner, 2006. "The Origins of the German Corporation - Finance, Ownership and Control," Review of Finance, European Finance Association, European Finance Association, vol. 10(4), pages 537-585, December.
    4. Fohlin,Caroline, 2007. "Finance Capitalism and Germany's Rise to Industrial Power," Cambridge Books, Cambridge University Press, number 9780521810203, 9.
    5. Lopez-de-Silanes, Florencio & Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei, 2008. "The Law and Economics of Self-dealing," Scholarly Articles 2907526, Harvard University Department of Economics.
    6. Craig Doidge & G. Andrew Karolyi & René M. Stulz, 2011. "The U.S. Left Behind: The Rise of IPO Activity Around the World," NBER Working Papers 16916, National Bureau of Economic Research, Inc.
    7. Burhop, Carsten & Wolff, Guntram B., 2005. "A Compromise Estimate of German Net National Product, 1851 1913, and its Implications for Growth and Business Cycles," The Journal of Economic History, Cambridge University Press, vol. 65(03), pages 613-657, September.
    8. Elizabeth Demers & Philip Joos, 2007. "IPO Failure Risk," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 333-371, 05.
    9. Mathias Siems & Priya Lele, 2006. "Shareholder Protection: A Leximetric Approach," ESRC Centre for Business Research - Working Papers, ESRC Centre for Business Research wp324, ESRC Centre for Business Research.
    10. David Chambers & Elroy Dimson, 2009. "IPO Underpricing over the Very Long Run," Journal of Finance, American Finance Association, vol. 64(3), pages 1407-1443, 06.
    11. Holmen, Martin & Hogfeldt, Peter, 2004. "A law and finance analysis of initial public offerings," Journal of Financial Intermediation, Elsevier, vol. 13(3), pages 324-358, July.
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