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Journal ArticleDOI

Law, Politics and the Rise and Fall of German Stock Market Development, 1870-1938

TL;DR: The stock market development in Germany between 1870 and the beginning of World War II has been studied in this article, showing that regulatory changes occurring in the 1880s and 1890s contributed to a very high survival rate among those companies going public, and the market retained its vibrancy through the 1920s notwithstanding an infamous hyperinflation episode. Collapse followed, however, at least partly due to regulatory changes inimical to the publicly quoted firm brought about by the ideological shifts under Nazi rule.
Abstract: Law and politics had a significant impact on stock market development in Germany between 1870 and the beginning of World War II. IPOs can be a bellwether for stock market development and nearly 1100 were carried out on the Berlin Stock Exchange during this period. Regulatory changes occurring in the 1880s and 1890s contributed to a very high survival rate among those companies going public. The IPO market retained its vibrancy through the 1920s notwithstanding an infamous hyperinflation episode. Collapse followed, however, in the 1930s, at least partly due to regulatory changes inimical to the publicly quoted firm brought about by the ideological shifts under Nazi rule.
Citations
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Journal ArticleDOI
TL;DR: However, Japan's commercial code of 1899 omitted the GmbH (private company) form, which Guinnane et al. as mentioned in this paper see as the jewel in the crown of Germany's organizational menu.
Abstract: La Porta et al. see common law as most favorable to corporate development and economic growth, but Japanese legislators explicitly based their system on German civil law. However, Japan’s commercial code of 1899 omitted the GmbH (private company) form, which Guinnane et al. see as the jewel in the crown of Germany’s organizational menu. Neither apparent “mistake” retarded Japan’s adoption of the corporate form, because its commercial code offered flexible governance and liability options, implemented liberally. It was this liberal flexibility, not choice of legal family or hybrid corporate forms emphasized by previous writers, that drove corporatization forward in Japan and more widely. Surprisingly (given that Germany’s superficially fuller organizational menu predated Japan’s by many decades and the country was wealthier), by the 1930s Japan already had not only more corporations than Germany, but also more commandite partnerships (with some corporate characteristics). After the introduction of the yugen kaisha (private company) in 1940, corporate forms became nearly as widely used in Japan as in the United States, United Kingdom, or Switzerland.

23 citations

Journal ArticleDOI
TL;DR: In this paper, a review of new books about hyperinflation and stabilization in Weimar Germany is presented, with a focus on the authorship of the authors and the authors.
Abstract: (1991). Hyperinflation and Stabilization in Weimar Germany. History: Reviews of New Books: Vol. 19, No. 3, pp. 125-126.

15 citations

Posted Content
TL;DR: However, Japan's commercial code of 1899 omitted the GmbH (private company) form, which Guinnane et al. as discussed by the authors see as the jewel in the crown of Germany's organizational menu.
Abstract: La Porta et al. see common law as most favorable to corporate development and economic growth, but Japanese legislators explicitly based their system on German civil law. However, Japan’s commercial code of 1899 omitted the GmbH (private company) form, which Guinnane et al. see as the jewel in the crown of Germany’s organizational menu. Neither apparent “mistake” retarded Japan’s adoption of the corporate form, because its commercial code offered flexible governance and liability options, implemented liberally. It was this liberal flexibility, not choice of legal family or hybrid corporate forms emphasized by previous writers, that drove corporatization forward in Japan and more widely. Surprisingly (given that Germany’s superficially fuller organizational menu predated Japan’s by many decades and the country was wealthier), by the 1930s Japan already had not only more corporations than Germany, but also more commandite partnerships (with some corporate characteristics). After the introduction of the yugen kaisha (private company) in 1940, corporate forms became nearly as widely used in Japan as in the United States, United Kingdom, or Switzerland.

9 citations

References
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Posted Content
TL;DR: This paper examined legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries and found that common law countries generally have the best, and French civil law countries the worst, legal protections of investors.
Abstract: This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

14,563 citations


"Law, Politics and the Rise and Fall..." refers background in this paper

  • ...The law and finance literature suggests that civil law countries such as Germany are less likely to introduce laws protecting minority investors and as such are less hospitable to stock market development than are common law countries (La Porta et al., 1998)....

    [...]

  • ...The law and finance hypothesis, which originated with papers by La Porta, Lopez de Silanes, Shleifer and Vishny (La Porta et al. 1997; La Porta et al. 1998) (LLSV), posits that the extent to which a country’s laws foster investor confidence by protecting minority shareholders and constraining…...

    [...]

  • ...…and finance literature that protection afforded to investors by corporate and securities law helps to determine the extent to which capital markets prosper (La Porta et al., 1998; La Porta et al., 2006), we reveal the positive impact of regulation enacted during the 1880s and 1890s on IPO survival....

    [...]

Journal ArticleDOI
TL;DR: The authors showed that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets than those with stronger investor protections.
Abstract: Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.

10,005 citations


"Law, Politics and the Rise and Fall..." refers background or result in this paper

  • ...Previous studies have verified a positive relationship between IPO activity and tougher regulation (La Porta et al., 1997; La Porta et al., 2006; Djankov et al., 2008; Doidge et al., 2013)....

    [...]

  • ...The law and finance hypothesis, which originated with papers by La Porta, Lopez de Silanes, Shleifer and Vishny (La Porta et al. 1997; La Porta et al. 1998) (LLSV), posits that the extent to which a country’s laws foster investor confidence by protecting minority shareholders and constraining…...

    [...]

Journal ArticleDOI
TL;DR: In this article, the authors argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems, and discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform.

6,387 citations

BookDOI
TL;DR: The authors argued that the preponderance of theoretical reasoning and empirical evidence suggests a positive first-order relationship between financial development and economic growth, and that financial development level is a good predictor of future rates of economic growth.
Abstract: The author argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth. There is evidence that the financial development level is a good predictor of future rates of economic growth, capital accumulation, and technological change. Moreover, cross-country, case-style, industry level and firm-level analysis document extensive periods when financial development crucially affects the speed and pattern of economic development. The author explains what the financial system does and how it affects, and is affected by, economic growth. Theory suggests that financial instruments, markets and institutions arise to mitigate the effects of information and transaction costs. A growing literature shows that differences in how well financial systems reduce information and transaction costs influence savings rates, investment decisions, technological innovation, and long-run growth rates. A less developed theoretical literature shows how changes in economic activity can influence financial systems. The author advocates a functional approach to understanding the role of financial systems in economic growth. This approach focuses on the ties between growth and the quality of the functions provided by the financial systems. The author discourages a narrow focus on one financial instrument, or a particular institution. Instead, the author addresses the more comprehensive question: What is the relationship between financial structure and the functioning of the financial system?

5,967 citations


"Law, Politics and the Rise and Fall..." refers background or methods in this paper

  • ...The country is often characterized as an exemplar of a bank-based financial system (Allen and Gale, 1995; Levine, 1997; Guinnane, 2002) and banks indeed often acted as underwriters of IPOs in our dataset and began functioning as gatekeepers of the stock exchange in the 1880s via the Berlin Stock Exchange admission board established in 1882....

    [...]

  • ...The country is often characterized as an exemplar of a bank-based financial system (Allen and Gale, 1995; Levine, 1997; Guinnane, 2002) and banks indeed often acted as underwriters of IPOs in our dataset and began functioning as gatekeepers of the stock exchange in the 1880s via the Berlin Stock…...

    [...]

Posted Content
TL;DR: In this paper, the authors trace the time series (Growth of Firms) tradition in the study of market structure and look at how recent studies on entry and the size distribution of firms have modified thinking in this area.
Abstract: This paper traces the time series (?Growth of Firms?) tradition in the study of market structure and looks at how recent studies on entry and the size distribution of firms have modified thinking in this area.

1,623 citations


"Law, Politics and the Rise and Fall..." refers background in this paper

  • ...Firm age (Sutton, 1997; Caves, 1998), firm size (Audretsch and Mahmood, 1995), and the type of industrial activity (Agarwal, 1997) have been found to be important determinants of IPO survival, with smaller, younger and new industrial sector firms having a lower survival probability....

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