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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


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.

Suggested Citation

  • Vitols, Sigurt & Engelhardt, Lutz, 2005. "National institutions and high tech industries: A varieties of capitalism perspective on the failure of Germany's Neuer Markt," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2005-03, Social Science Research Center Berlin (WZB).
  • Handle: RePEc:zbw:wzbism:spii200503

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    References listed on IDEAS

    1. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-591, July.
    2. Luigi Guiso & Michael Haliassos & Tullio Jappelli, 2003. "Household stockholding in Europe: where do we stand and where do we go?," Economic Policy, CEPR;CES;MSH, vol. 18(36), pages 123-170, April.
    3. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    5. repec:hrv:faseco:30728041 is not listed on IDEAS
    6. Hall, Peter A. & Soskice, David (ed.), 2001. "Varieties of Capitalism: The Institutional Foundations of Comparative Advantage," OUP Catalogue, Oxford University Press, number 9780199247752.
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    Cited by:

    1. Engelhardt, Lutz, 2007. "Der Entry Standard der Frankfurter Wertpapierbörse als Nachfolger des Neuen Marktes: Zwei Versuche institutioneller Innovation in Deutschland," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2007-05, Social Science Research Center Berlin (WZB).
    2. 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


    Startups; Venture Capital; IPO; Stock Market; High Tech; Software;

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General


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