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

Sigurt Vitols and Lutz Engelhardt

Discussion Papers, Research Unit: Institutions, States, Markets from WZB Berlin Social Science Center

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.

Keywords: Startups; Venture Capital; IPO; Stock Market; High Tech; Software (search for similar items in EconPapers)
JEL-codes: G30 L86 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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