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The Demise of Investment-Banking Partnerships: Theory and Evidence

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Author Info
Alan D. Morrison
William J. Wilhelm

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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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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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  1. William D. Nordhaus, 2001. "The Progress of Computing," Cowles Foundation Discussion Papers 1324, Cowles Foundation, Yale University. [Downloadable!]
  2. Jonathan Levin, 2002. "A Theory of Partnerships," Theory workshop papers 505798000000000002, UCLA Department of Economics. [Downloadable!]
  3. Boot, Arnoud W A & Greenbaum, Stuart I & Thakor, Anjan V, 1993. "Reputation and Discretion in Financial Contracting," American Economic Review, American Economic Association, vol. 83(5), pages 1165-83, December. [Downloadable!] (restricted)
  4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
  5. Alan Morrison & William J. Wilhelm, Jr., 2003. "Partnership Firms, Reputation and Human Capital," OFRC Working Papers Series 2003fe02, Oxford Financial Research Centre. [Downloadable!]
  6. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July. [Downloadable!] (restricted)
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  1. Steven N. Kaplan & Joshua Rauh, 2007. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Working Papers 13270, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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