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National institutions and high tech industries: A varieties of capitalism perspective on the failure of Germany's Neuer Markt

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  • Vitols, Sigurt
  • Engelhardt, Lutz

Abstract

One of the more prominent recent failures in institutional innovation in Germany was the Neuer Markt (1997-2003), a special segment of the Frankfurt stock exchange designed for high-growth companies. Based in part on insights from the law and economics approach to agency theory, which emphasizes transparency in financial reporting and shareholder rights, the Neuer Markt was an attempt to promote high-tech sectors through increasing the supply of risk capital in Germany. Proponents of the agency approach have suggested that the Neuer Markt failed because reporting requirements and shareholder protection were still inadequate, and have argued for even stricter financial regulation. This paper offers an alternative explanation for the failure of the Neuer Markt based on the Varieties of Capitalism (VOC) approach. This explanation focuses on the complementarities between financial markets and labor markets. Successful entrepreneurial companies require both capital and experienced managers and scientists willing to take higher risks in search of higher returns. Although the supply of risk-friendly capital increased briefly in the late 1990s in Germany, labor markets did not fundamentally change. In particular, mobility in the market for mid-career scientists and managers remains quite low, making it difficult for startups to attract the experienced knowledge workers they need to succeed.

Suggested Citation

  • Vitols, Sigurt & Engelhardt, Lutz, 2005. "National institutions and high tech industries: A varieties of capitalism perspective on the failure of Germany's Neuer Markt," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2005-03, WZB Berlin Social Science Center.
  • Handle: RePEc:zbw:wzbism:spii200503
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    Cited by:

    1. Alexander Ebner, 2010. "Varieties of Capitalism and the Limits of Entrepreneurship Policy: Institutional Reform in Germany’s Coordinated Market Economy," Journal of Industry, Competition and Trade, Springer, vol. 10(3), pages 319-341, September.
    2. Annaleena Parhankangas & Åsa Lindholm-Dahlstrand, 2011. "Spin-offs to stock markets as a complementary form of entrepreneurship: Contrasting US, UK and Japanese experiences," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 24(5-6), pages 307-335, March.
    3. Lechowski, Grzegorz, 2019. "Beyond "dependent development" in a high-tech industry? The interplay between domestic institutions and transnational sectoral governance in the trajectories of emerging Polish IT firms [," Discussion Papers, Research Group Globalization, Work, and Production SP III 2018-302r, WZB Berlin Social Science Center, revised 2019.
    4. Engelhardt, Lutz, 2007. "Der Entry Standard der Frankfurter Wertpapierbörse als Nachfolger des Neuen Marktes: Zwei Versuche institutioneller Innovation in Deutschland," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2007-05, WZB Berlin Social Science Center.
    5. Reale, Filippo, 2019. "Governing innovation systems: A Parsonian social systems perspective," Technology in Society, Elsevier, vol. 59(C).
    6. Gil Avnimelech & Alessandro Rosiello & Morris Teubal, 2010. "Evolutionary interpretation of venture capital policy in Israel, Germany, UK and Scotland," Science and Public Policy, Oxford University Press, vol. 37(2), pages 101-112, March.
    7. Lechowski, Grzegorz, 2018. "Beyond "dependent development" in a high-tech industry? The interplay between domestic institutions and transnational sectoral governance in the trajectories of emerging Polish IT firms," Discussion Papers, Research Group Globalization, Work, and Production SP III 2018-302, WZB Berlin Social Science Center.
    8. Alvaro Cuervo-Cazurra & Anna Grosman & Geoffrey T. Wood, 2023. "Cross-country variations in sovereign wealth funds’ transparency," Journal of International Business Policy, Palgrave Macmillan, vol. 6(3), pages 306-329, September.

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    More about this item

    Keywords

    Startups; Venture Capital; IPO; Stock Market; High Tech; Software;
    All these keywords.

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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