legal impediments in Germany may be the result of coalitions of interest groups is expressed
most clearly in Wenger (1996). He argues that politicians insulate managers of large corporations
from capital market pressure in exchange for corporate contributions to satisfy certain voting
groups and provides examples of the expropriation of minority shareholders by coalitions of
politicians, judges, and managers. Less pronounced are the following examples, which highlight
some specific problems. For example, winning acceptance for Frankfurt as the location for the
German Stock Exchange prior to opening the Deutsche Borse AG in Frankfurt in 1993 “required
two years of negotiation with the state supervisors, brokers and governments as well as strong
support from the Finance Ministry and Chancellor Kohl” (Story and Walter, 1997, p. 181). While
Frankfurt banks supported a strong central stock exchange in Frankfurt, they certainly did not
favor all changes that would have strengthened the use of the stock market as a source of
financing. According to Story and Walter “banks feared handing power to a federal authority—
such as the United States SEC—and were reluctant to strengthen in-house rules against insider
trading” (p. 182) and therefore opposed the EU insider-trading directive. Another example are the
government’s attempts to increase the amount of risk capital available for small firms. Becker
and Hellmann (2002) trace the failure of the Deutsche Wagnisfinanzierungsgesellschaft, an early
German venture capital firm, back to “inappropriate contracting and governance structures”.
They argue that one problem was misguided financing criteria that “suited those banks that feared
competition ... in their core business” (p. 23). But another important aspect was certainly that the
government’s programs were biased towards entrepreneurs, as discussed in section 3. The
unwillingness to give more rights to financiers shows that the fear of outside intervention by
investors was a widespread phenomenon in Germany. It was shared by politicians, press, and
workers and was not only the concern of families and entrepreneurs. Indeed, when the
management of a stock corporation is required by law to act in the “common/public welfare of
the nation”, it is only consistent to restrict outside investors’ ability to interfere.59 Another
example is the 2nd Financial Market Promotion Act, which transferred a EU directive into
German law and was viewed by politicians as an important step towards a more active stock
market. However, as Story and Walter (1997) argue, the law had a number of important
59 The public welfare clause (“Gemeinwohlklausel”) was introduced in § 70 of the Aktiengesetz (stock corporation
act) of 1937. It was not included in the revision of 1965 but only because—as reasoned in the government draft—
it goes without saying. (For details see Schmidt and Spindler, 1997.)
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