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The Demise of Investment-Banking Partnerships: Theory and Evidence

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  • Alan D. Morrison
  • William J. Wilhelm

Abstract

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.

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Bibliographic Info

Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2004fe14.

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Date of creation: 2004
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Handle: RePEc:sbs:wpsefe:2004fe14

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Web page: http://www.finance.ox.ac.uk
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Cited by:
  1. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters, in: Corporate Governance National Bureau of Economic Research, Inc.
  2. James Crotty, 2009. "The Bonus-Driven “Rainmaker” Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability," UMASS Amherst Economics Working Papers 2009-13, University of Massachusetts Amherst, Department of Economics.
  3. Loss, Frédéric & Renucci, Antoine, 2008. "Reputation Capital, Financial Capital, and Transition to Entrepreneurship," Economics Papers from University Paris Dauphine 123456789/2945, Paris Dauphine University.
  4. James Crotty, 2010. "The Bonus-Driven “Rainmaker” Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability (revised)," Working Papers wp209_revised3, Political Economy Research Institute, University of Massachusetts at Amherst.
  5. John Thanassoulis, 2011. "The Case For Intervening In Bankers' Pay," Economics Series Working Papers 532, University of Oxford, Department of Economics.
  6. Natália Pimenta Monteiro & Geoff Stewart, 2013. "Scale, Scope and Survival: A Comparison of Cooperative and Capitalist Modes of Production," NIPE Working Papers 08/2013, NIPE - Universidade do Minho.
  7. John Thanassoulis, 2011. "Bankers' Pay Structure And Risk," Economics Series Working Papers 545, University of Oxford, Department of Economics.

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