Initial Public Offerings and Venture Capital in Germany

1. Introduction

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.¹ 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 different from that in
other countries. The picture for venture capital financing is not much different 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 standards, 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 financing 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 phenomenon. 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.

The paper is organized as follows: In section 2 we illustrate the history and the recent
increase of initial public offerings in Germany. Section 3 describes the development and the

1 This was not always the case. Tilly (1992, pp. 103-104) finds that both the volume of total market issues and the
proportion of issuance consisting of equity were greater in Germany at the beginning of the 20^th century than they
were in the United Kingdom. See also Fohlin (2000a), Rajan and Zingales (2001), and Schlag and Wodrich
(2000).

<<   1   2   3   4   5   6   >>

More intriguing information