Finance Capitalism and Germany's Rise to Industrial Power

Dedication......Page 9
Contents......Page 11
Acknowledgments......Page 13
1 Introduction......Page 15
WHAT IS THE ROLE OF THE FINANCIAL SYSTEM IN ECONOMIC GROWTH?......Page 17
Universal versus Specialized Banking......Page 18
Motivation for the Study......Page 20
CLEARER UNDERSTANDING OF THE GERMAN EXPERIENCE......Page 21
LESSONS FOR TODAY......Page 22
The Plan of the Book......Page 23
Limitations of the Analysis......Page 26
The Primary Conclusions in Brief......Page 27
THE EARLY INDUSTRIAL PERIOD (1848–1870)......Page 29
THE KAISERREICH (1871–1914)......Page 35
The Credit Banks......Page 39
The Credit Banks and the Stock Exchanges......Page 41
The Gerschenkron-Inspired Paradigm......Page 43
Traditional Areas of Debate in the Historical Literature......Page 51
Difficulties in the Gerschenkron-Inspired Paradigm......Page 58
The Existence and Functions of Intermediaries......Page 62
The Pecking Order of Financial Instruments......Page 64
FINANCIAL SYSTEM STRUCTURE AND THE OPTIMAL PROVISION OF FINANCE......Page 66
Costs of Universal Banking and Relationship Banking......Page 70
FINANCIAL STRUCTURE AND ECONOMIC GROWTH......Page 73
THEORY MEETS EVIDENCE......Page 77
4 The Development and Impact of Universal Banking......Page 79
THE GROWTH AND STRUCTURE OF THE UNIVERSAL BANKING INDUSTRY......Page 80
Industrial Organization of Universal Banking......Page 85
Creation and Expansion of Branch Networks......Page 88
Concentration in Universal Banking......Page 90
DEVELOPMENT OF UNIVERSAL BANKING PRACTICES......Page 94
Aggregate Bank Assets......Page 95
Aggregate Bank Liabilities......Page 98
Individual Bank Income Statements......Page 101
BANK PERFORMANCE: CAPITAL MOBILIZATION, RISK, COMPETITIVENESS, AND RETURNS......Page 102
On-Balance-Sheet Activities: Asset and Liability Ratios......Page 103
Proportion and Riskiness of Various Liquid Assets......Page 104
Bank Returns......Page 111
UNIVERSAL BANKING DEVELOPMENT AND ECONOMIC GROWTH......Page 115
CONCLUSIONS......Page 118
BANK-HELD EQUITY STAKES IN NONFINANCIAL FIRMS......Page 120
Aggregate Patterns of Securities Holdings by Banks......Page 121
Arnold’s Panel of Large Universal Banks......Page 127
Detailed Securities Holdings for Two Great Banks......Page 130
Bank Stakes in the Larger Context......Page 134
PROXY VOTING......Page 135
The Makeup of Corporate Boards......Page 139
Executive Boards......Page 141
Supervisory Boards......Page 146
Defining Interlocking Directorates......Page 147
Patterns of Interlocking Directorates......Page 148
Direct Comparison of Firms with and without Bank Affiliations......Page 158
Multivariate Models: Connections between Proxy Voting and Interlocking Directorates......Page 167
Expected Coefficients and Results......Page 169
Proxy Voting......Page 175
Gaining and Losing Bank BoardMembers......Page 177
CHAPTER SUMMARY AND CONCLUSIONS......Page 181
6 Firm Financing and Performance......Page 183
ACCESS TO FINANCE AND COSTS OF CAPITAL......Page 185
CAPITAL STRUCTURE AND FINANCING DECISIONS......Page 189
Testing Capital Structure Theories......Page 190
Impact of Banking Relationships......Page 196
CREDIT RATIONING AND LIQUIDITY CONSTRAINTS......Page 201
Empirical Evidence......Page 203
The Impact of Banking Relationships......Page 205
Firm Growth......Page 211
The Impact of Banking Relationships......Page 213
Firm Survival Patterns......Page 216
Firm Profitability......Page 221
MANAGERIAL TURNOVER AND FIRM PERFORMANCE......Page 228
Empirical Evidence on Managerial Turnover and Firm Performance......Page 229
The Impact of Banking Relationships on Profits and Managerial Turnover......Page 232
SUMMARY AND CONCLUSIONS......Page 233
APPENDIX: SURVIVAL MODELS......Page 234
BACKGROUND ON STOCK MARKET REGULATION AND COMPANY LAW......Page 236
A Brief History of the German Stock Exchanges......Page 237
Regulating the Exchanges......Page 242
Underwriting New Issues and Admission of Shares Official Trading......Page 243
Taxation of Bourse Transactions......Page 247
Price Setting on the Exchanges......Page 249
The Measurable Impact of Regulation and Taxation......Page 250
Growth of Universal Banking......Page 259
Universal Banks versus StockMarkets......Page 262
The Impact of Regulation versus General Trends......Page 266
Listing Decisions......Page 269
Prices and Returns......Page 275
Market Efficiency and the Predictability of Returns......Page 276
Stock Returns in the BerlinMarket, 1880–1913......Page 277
Multicharacteristic Models......Page 283
Momentum Portfolio Returns......Page 287
Price Discovery and the Costs of Trading......Page 289
CONCLUSIONS......Page 290
APPENDIX: DATA USED IN THE STUDY OF THE CROSS SECTION OF RETURNS......Page 291
The Economic, Political, and Legal Environment......Page 292
The Banking Industry......Page 297
Banks and Corporate Governance......Page 300
Financial Markets......Page 301
The Economic, Political, and Legal Environment......Page 304
The Banking Industry......Page 308
Corporate Governance......Page 312
FinancialMarkets......Page 314
The Economic, Political, and Legal Environment......Page 318
The Banking Industry......Page 323
Banks and Corporate Governance......Page 326
Financial Markets......Page 333
CONCLUSIONS......Page 341
9 Conclusion......Page 343
HISTORICAL FINDINGS......Page 344
Structure and Development of the Universal Banking Sector......Page 345
Corporate Governance Relationships......Page 347
Firm Financing and Performance......Page 350
Securities Markets......Page 353
REFINING THEORIES OF FINANCIAL INTERMEDIATION......Page 355
LESSONS FOR TODAY......Page 356
FINAL THOUGHTS......Page 359
References......Page 363
Index......Page 387