Working Paper: CEPR ID: DP4904
Authors: Alan Morrison; William J. Wilhelm Jr.
Abstract: Until 1970, the New York Stock Exchange prohibited public incorporation of member firms. After the rules were relaxed to allow joint stock firm membership, investment-banking concerns organized as partnerships or closely-held private corporations went public in waves, with Goldman Sachs (1999) the last of the bulge bracket banks to float. In this paper we ask why the Investment Banks chose to float after 1970, and why they did so in waves. In our model, partnerships have a role in fostering the formation of human capital (Morrison and Wilhelm, 2003). We examine in this context the effect of technological innovations which serve to replace or to undermine the role of the human capitalist and hence we provide a technological theory of the partnership?s going-public decision. We support our theory with a new dataset of investment bank partnership statistics.
Keywords: Collective Reputation; Going Public Decision; Human Capital; Investment Bank; Partnership
JEL Codes: G24; G32; J24; J41; L14; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological innovations in the 1960s (O33) | going-public decision of investment banks (G24) |
| Technological innovations (O39) | reliance on tacit human capital (J24) |
| Technological advancements (O33) | operational efficiency (D61) |
| Operational efficiency (D61) | need for large investments in physical capital (E22) |
| Need for large investments in physical capital (E22) | partnerships going public (H44) |
| Diminished importance of tacit human capital (J24) | pressures to float partnerships (G24) |
| Technological advancements (O33) | demise of partnership form (G33) |