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Initial public offerings and venture capital in Germany

Author

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  • Franzke, Stefanie A.
  • Grohs, Stefanie
  • Laux, Christian

Abstract

We present a survey on the role of initial public offerings (IPOs) and venture capital (VC) in Germany after the Second World War. Between 1945 and 1983 IPOs hardly played a role at all and only a minor role thereafter. In addition, companies that chose an IPO were much older and larger than the average companies going public for the first time in the US or the UK. The level of IPO underpricing in Germany, in contrast, has not been fundamentally different from that in other countries. The picture for venture capital financing is not much different from that provided by IPOs in Germany. For a long time venture capital financing was hardly significant, particularly as a source of early stage financing. The unprecedented boom on the Neuer Markt between 1997 and 2000, when many small venture capital financed firms entered the market, provides a striking contrast to the preceding era. However, by US standards, the levels of both IPO and venture capital activities remained rather low even in this boom phase. The extent to which recent developments will have a lasting impact on the financing of German firms, the level of IPO activity, and venture capital financing, remains to be seen. At the time of writing, activity has come to a near stand still and the Neuer Markt has just been dissolved. The low number of IPOs and the fairly low volume of VC financing in Germany before the introduction of the Neuer Markt are a striking and much debated phenomenon. Understanding the reasons for these apparent peculiarities is vital to understanding the German financial system. The potential explanations that have been put forward range from differences in mentality to legal and institutional impediments and the availability of alternative sources of financing. Moreover the recent literature discusses how interest groups may have benefited and influenced the situation. These groups include politicians, unions/ workers, managers/controlling-owners of established firms as well as banks.

Suggested Citation

  • Franzke, Stefanie A. & Grohs, Stefanie & Laux, Christian, 2003. "Initial public offerings and venture capital in Germany," CFS Working Paper Series 2003/26, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200326
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    References listed on IDEAS

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    1. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
    2. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
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    5. Fohlin, Caroline, 2000. "IPO Underpricing in Two Universes: Berlin, 1882-1892, and New York, 1998-2000," Working Papers 1088, California Institute of Technology, Division of the Humanities and Social Sciences.
    6. Ljungqvist, Alexander P., 1997. "Pricing initial public offerings: Further evidence from Germany," European Economic Review, Elsevier, vol. 41(7), pages 1309-1320, July.
    7. Leuz, C & Verrecchia, RE, 2000. "The economic consequences of increased disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 91-124.
    8. Fohlin Caroline, 2002. "Corporate Capital Structure and the Influence of Universal Banks in Pre- World War I Germany," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 43(2), pages 113-134, December.
    9. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
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    Cited by:

    1. Gil Avnimelech & Alessandro Rosiello & Morris Teubal, 2010. "Evolutionary interpretation of venture capital policy in Israel, Germany, UK and Scotland," Science and Public Policy, Oxford University Press, vol. 37(2), pages 101-112, March.

    More about this item

    Keywords

    Initial Public Offering (IPO); Venture Capital; Germany;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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