Taking firms to the stock market: IPOs and the importance of large banks in imperial G ermany, 1896–1913

Large universal banks played a major role in G ermany's industrialization because they provided loans to industry and thereby helped firms to overcome liquidity constraints. Previous research has also argued that they were equally important for the G erman stock market. This article provides quantitative and qualitative evidence that although the market for underwriters was dominated by a small oligopoly of six large banks, there was still perceptible competition, which kept fees and short‐run profits low. Another interesting finding presented here is the absence of a signalling effect to investors. Neither underpricing nor the one‐year performance was different for the IPOs issued by one of the B ig S ix. Thus, although the G erman IPO business was in the hands of a small oligopoly, investors did not benefit from the lack of competition. One explanation is that the quality of IPOs on the G erman stock market of the time was very good in general as a result of the competition between underwriters, but also as a result of the tight regulation of underwriting, which ensured the quality of all firms on the G erman stock market.