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Taking firms to the stock market: IPOs and the importance of large banks in imperial G ermany, 1896–1913
Author(s) -
Lehmann Sibylle H.
Publication year - 2014
Publication title -
the economic history review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.014
H-Index - 49
eISSN - 1468-0289
pISSN - 0013-0117
DOI - 10.1111/1468-0289.12016
Subject(s) - underwriting , initial public offering , market liquidity , oligopoly , business , competition (biology) , stock (firearms) , stock market , monetary economics , industrial organization , economics , finance , microeconomics , mechanical engineering , ecology , paleontology , horse , engineering , biology , cournot competition
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.