The Demise of
Investment-Banking Partnerships: Theory and Evidence.
Alan D. Morrison: Saïd Business School and
Merton College, University of Oxford
William J. Wilhelm, Jr.: McIntire School
of Commerce, University of Virginia and Saïd Business School, University of
Oxford.
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.
KEY WORDS: Partnership, human capital,
collective reputation, investment bank, going-public decision.
JEL CLASSIFICATION: G24, G32, J24, J41, L14,
L22.
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