Initial Public Offerings and Venture Capital in Germany

deficiencies and “political support for an open market in corporate assets was minimal” (p. 183).
Story and Walter conclude: “The firm intention of German political, business or labour leaders
was to ensure that capitalism in Germany would remain a national brand of its European variant”
(p. 185). The examples above illustrate the strong role of path dependence for the development of
a financial system as emphasized by Bebchuk and Roe (1999).

Reconsidering Mentality. While it is conceivable that German investors may be more risk
averse than those in other countries because they incurred huge losses as a consequence of the
Second World War, it may also be the case that (small) investors did not fear business risk per se
but rather information and incentive problems, which may be larger in Germany than in the US or
the UK. Moreover, the German economic miracle and the strength of the German middle class
(Mittelstand), which runs the vast majority of firms on the basis of sole proprietorship, would
hardly have been possible without entrepreneurial initiative. However, as Fiedler and Hellmann
(2001) argue, this type of entrepreneurial spirit was quite different from the one needed for
venture capital financing: “The concept of sharing equity with outsiders was foreign to these
entrepreneurs. They viewed their family business with pride and put great emphasis on retaining
control.” (p. 34) This view is confirmed by Ehrhardt and Nowak (2001) who find that reputation
benefits that families derive from controlling a business in a small town is an important source of
private benefits of control, which are not transferable. Families protect these benefits in an IPO
by retaining a large equity block and issuing dual class shares. This and the large fraction of sole
proprietorships suggests that owners may indeed fear a loss of control. If it is not believed that
German entrepreneurs value control more than entrepreneurs in the US or in the UK, then
differences must be sought in the legal and institutional setting. For example, Burkart, Panunzi
and Shleifer (2003) present a model that predicts that the founder’s family will retain control
through concentrated ownership and may continue to manage the firm if legal protection of
minority shareholders is low, which is the case in Germany.⁶⁰ As a consequence, the benefits of
issuing shares, in particular seeking diversification, are lower. This effect is reinforced by the
presence of alternative sources of financing. Also, the argument that one of the potential reasons

⁶⁰ Another reason my be that German owners are particularly sensitive to a further loss of control because their
rights are already restricted by codetermination and the strong position of German trade unions (Gerke, 1998, p.
617).

25

<<   24   25   26   27   28   29   30   >>

More intriguing information