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National institutions and high tech industries: A varieties of capitalism perspective on the failure of Germany's Neuer Markt

  • Vitols, Sigurt
  • Engelhardt, Lutz
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    One of the more prominent recent failures in institutional innovation in Germany was the Neuer Markt (1997-2003), a special segment of the Frankfurt stock exchange designed for high-growth companies. Based in part on insights from the law and economics approach to agency theory, which emphasizes transparency in financial reporting and shareholder rights, the Neuer Markt was an attempt to promote high-tech sectors through increasing the supply of risk capital in Germany. Proponents of the agency approach have suggested that the Neuer Markt failed because reporting requirements and shareholder protection were still inadequate, and have argued for even stricter financial regulation. This paper offers an alternative explanation for the failure of the Neuer Markt based on the Varieties of Capitalism (VOC) approach. This explanation focuses on the complementarities between financial markets and labor markets. Successful entrepreneurial companies require both capital and experienced managers and scientists willing to take higher risks in search of higher returns. Although the supply of risk-friendly capital increased briefly in the late 1990s in Germany, labor markets did not fundamentally change. In particular, mobility in the market for mid-career scientists and managers remains quite low, making it difficult for startups to attract the experienced knowledge workers they need to succeed.

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    File URL: http://econstor.eu/bitstream/10419/51234/1/481981020.pdf
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    Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Institutions, States, Markets with number SP II 2005-03.

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    Date of creation: 2005
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    Handle: RePEc:zbw:wzbism:spii200503
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    1. Luigi Guiso & Michael Haliassos & Tullio Jappelli, 2002. "Household Stockholding in Europe: Where Do We Stand and Where Do We Go?," CSEF Working Papers 88, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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    3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
    4. Hall, Peter A. & Soskice, David (ed.), 2001. "Varieties of Capitalism: The Institutional Foundations of Comparative Advantage," OUP Catalogue, Oxford University Press, number 9780199247752, March.
    5. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
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