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The Demise of Investment-Banking Partnerships: Theory and Evidence

Author

Listed:
  • Alan Morrison
  • William J. Wilhelm
  • Jr.
  • McIntire School of Commerce
  • University of Virginia

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. Our explanation extends previous work which examined the role of partnerships 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.

Suggested Citation

  • Alan Morrison & William J. Wilhelm & Jr. & McIntire School of Commerce & University of Virginia, 2004. "The Demise of Investment-Banking Partnerships: Theory and Evidence," Economics Series Working Papers 2004-FE-14, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:2004-fe-14
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    File URL: https://ora.ox.ac.uk/objects/uuid:787a21a5-3f85-4a2b-86a7-4d541f3c6628
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    Citations

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    Cited by:

    1. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Partnership; Human Capital; Collective Reputation; Investment Bank; Going-Public Decision;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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