The Demise of Investment Banking Partnerships: Theory and Evidence

Alan Morrison and William J Wilhelm

No 4904, CEPR Discussion Papers from Centre for Economic Policy Research

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: Going-public decision; Partnership; Human capital; Collective reputation; Investment bank (search for similar items in EconPapers)
JEL-codes: G24 G32 J24 J41 L14 L22 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-fin and nep-his
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