Introduction

In chapter 3 the finance of investment by the aggregate non-financial enterprise sector in Germany was analysed and compared to that in the UK. It is, however, important to examine the finance of investment by German firms at a more disaggregated level. A distinctive feature of the organisation of production in Germany, by comparison with the UK, is that a much larger proportion of the output of the German economy is accounted for by partnerships and sole proprietorships as opposed to limited liability companies. This is the reason for the difference, noted in chapter 3, between the German and UK national accounts definitions of the non-financial enterprise sector. Unincorporated enterprises are included in the household sector in the UK, but in Germany the capital finance account of the Deutsche Bundesbank includes self-employed persons and partnerships in the producing enterprises sector if their transactions relate to production and capital formation. The implications for the German system of investment finance of the difference between Germany and the UK in the relative importance of various types of firm are the subject of this chapter.

The German system of universal banks with representation on supervisory boards was argued, in chapter 2, to create the potential to exploit economies of scale and scope in information-collection and the exercise of the rights attached to debt and equity finance to change the management of a firm. A particular component of this general argument concerns the delegated exercise of equity's control rights by banks.