CFS Working Paper No. 2003/26
Initial Public Offerings and Venture Capital in Germany
Stefanie Franzke*, Stefanie Grohs, Christian Laux
April 2003
Abstract:
We present a survey on the role of initial public offerings (IPOs) and venture capital (VC) in
Germany after the Second World War. Between 1945 and 1983 IPOs hardly played a role at
all and only a minor role thereafter. In addition, companies that chose an IPO were much
older and larger than the average companies going public for the first time in the US or the
UK. The level of IPO underpricing in Germany, in contrast, has not been fundamentally dif-
ferent from that in other countries. The picture for venture capital financing is not much dif-
ferent from that provided by IPOs in Germany. For a long time venture capital financing was
hardly significant, particularly as a source of early stage financing. The unprecedented boom
on the Neuer Markt between 1997 and 2000, when many small venture capital financed firms
entered the market, provides a striking contrast to the preceding era. However, by US stan-
dards, the levels of both IPO and venture capital activities remained rather low even in this
boom phase. The extent to which recent developments will have a lasting impact on the fi-
nancing of German firms, the level of IPO activity, and venture capital financing, remains to
be seen. At the time of writing, activity has come to a near stand still and the Neuer Markt has
just been dissolved. The low number of IPOs and the fairly low volume of VC financing in
Germany before the introduction of the Neuer Markt are a striking and much debated phe-
nomenon. Understanding the reasons for these apparent peculiarities is vital to understanding
the German financial system. The potential explanations that have been put forward range
from differences in mentality to legal and institutional impediments and the availability of
alternative sources of financing. Moreover the recent literature discusses how interest groups
may have benefited and influenced the situation. These groups include politicians, unions/
workers, managers/controlling-owners of established firms as well as banks.
JEL Classification: G10, G24, G14
Keywords: Initial Public Offering (IPO), Venture Capital, Germany
* Center for Financial Studies at the Johann Wolfgang Goethe-Universitat, Taunusanlage 6, 60329 Frank-
furt/Main, Germany. Phone: +49-69-24 29 41 16, Fax: +49-69-24 29 41 77, Email: [email protected]
We would like to thank Thomas Hellmann, Christian Leuz, Franz-Josef Leven, Giovanna Nicodano, Richard
Stehle, and the editors of the book ”The German Financial System” for very valuable comments. We also thank
seminar participants at the Goethe-University Frankfurt, University of Mannheim, and the 2001 FMG and ESF
Workshop “Strategic Interactions in Relationship Finance: Bank Lending and Venture Capital”.
Forthcoming in:
The German Financial System by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press