¹ This is changing dramatically. Increasingly, economists are examining financial issues in comparative, historical, and institutional terms. See, for example, Rajan, Raghuram G. and Zingales, Luigi, The Great Reversals: The Politics of Financial Development in the Twentieth Century,” Journal of Financial Economics 69 (2003): 5–50CrossRefGoogle Scholar.

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³ McKenna, Christopher D., “The World's Newest Profession: Management Consulting in the Twentieth Century,” Enterprise & Society 2 (Dec. 2001): 673–79CrossRefGoogle Scholar; Kipping, Matthias, “American Management Consulting Companies in Western Europe, 1920 to 1990: Products, Reputation, and Relationships,” Business History Review 73 (Summer 1999): 190–220Google Scholar.

⁴ See James, Harold, The End of Globalization: Lessons from the Great Depression (Cambridge, Mass., 2001).Google Scholar

⁵ Hossfeld, Christopher, “The Myth of Comparable IAS Financial Statements: The Case of European Banks,” paper presented at the European Accounting Association, 27th Annual Meeting, Prague, 2004Google Scholar; Bradshaw, Mark T. and Miller, Gregory S., “Will Harmonizing Accounting Standards Really Harmonize Accounting? Evidence from Non–U.S. Firms Adopting U.S. GAAP,” HBS Working Paper, Jan. 2005, www.people.hbs.edu/jsiegel/BM_HBSINTEL VERSION.doc, accessed 25 May 2005.Google Scholar

⁶ For an excellent and thorough introduction to German accounting thought, see Küpper, Hans– Ulrichand Mettessich, Richard, “Twentieth Century Accounting Research in the German Language Area,” Accounting, Business & Financial History 15 (Nov. 2005): 345–410CrossRefGoogle Scholar.

⁷ The relative sophistication of managerial accounting and practices inside German firms is a major thesis argued by Fear, Jeffrey, Organizing Control: August Thyssen and the Construction of German Management (Cambridge, Mass., 2005).CrossRefGoogle Scholar

⁸ Hawkins, David F., “The Development of Modern Financial Reporting Practices among American Manufacturing Corporations,” Business History Review (Autumn 1963): 135–68Google Scholar.

⁹ Windolf, Paul, “Unternehmensverflechtung im organisierten Kapitalismus: Deutschland und USA im Vergleich 1896–1938,” available at www.uni–trier.de/uni/fb4/soziologie/apo/ netzwerk1896.pdf, accessed 15 July 2005. Prior to 1914, U.S. firms had just as many bankers, interlocking directories, and larger boards of directors as German firms.Google Scholar

¹⁰ Lamoreaux, Naomi, Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England (Cambridge, U.K., 1994)CrossRefGoogle Scholar; Christopher Kobrak, Cooperation, Conflict, Men, and Markets: Deutsche Bank and the United States from 1870 to the Present (Cambridge, U.K., forthcoming); Previts, Gary Johnand Merino, Barbara Dubis, A History of Accountancy in the United States: The Cultural Significance of Accounting (Columbus, Ohio, 1998), 208–23Google Scholar; Miranti, Paul J. Jr., Accountancy Comes of Age: The Development of an American Profession, 1886–1940 (Chapel Hill, 1990).Google ScholarFor a good, brief discussion of American securities law before the 1930sGoogle Scholar, see Burk, James, Values in the Marketplace: The American Stock Market under Federal Securities Law (New York, 1988), 167–74.Google Scholar For post–1933 developments, see McCraw, Thomas K., Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn (Cambridge, Mass., 1984);Google ScholarRoe, Mark, “Delaware's Competition,” Harvard Law Review 117 (2003): 588CrossRefGoogle Scholar, on the limits of state power to determine corporate law.

¹¹ Hawkins, “Development of Modern Financial Reporting Practices.”

¹² We elucidate prewar differences more precisely in Jeffrey Fear and Christopher Kobrak, “The Roots of Corporate Governance Systems: Financial Reporting and Banking in the U.S. and Germany” (forthcoming). For German accounting theory and practice before World War I, we have relied principally on Baetge, Jörg et al., Bilanzen (Düsseldorf, 2001), 88–89Google Scholar; Düring, Adler H. and Schmalz, K., Rechnung und Prüfung der Unternehmen Kommentar zum HGB (Stuttgart, 1987)Google Scholar; Hanf, Reinhardt, “Veröffentlichte Jahresabschlüsse von Unternehmen im Deutschen Kaiserreich: Bedeutung und Aussagewert für wirtschaftshistorische Analysen,” Zeitschrift für Unternehmensgeschichte 23, no. 3 (1978): 147–51CrossRefGoogle Scholar; Fischer, R., Die Bilanzwerte: Was Sie Sind und Was Sie nicht Sind (Leipzig, 1905)Google Scholar; and Penndorf, B., Geschichte der Buchhaltung in Deutschland (Leipzig, 1913)Google Scholar. The most important contemporary work is Simon, Herman Veit, Die Bilanzen der Aktiengesellschaften und der Kommanditge sellschaften auf Aktien (Berlin, 1899, 1st ed. 1886)Google Scholar. Simon's work best expressed the foundational principles of German accounting. See also Spoerer, Mark, Von Scheingewinnen zum Rüstungsboom: die Eigenkapitalrentabilität der deutschen Industrieaktiengesellschaften, 1925–1941 (Stuttgart, 1996), 62–97Google Scholar; Gallhofer, Sonja and Haslam, James, “The Aura of Accounting in the Context of a Crisis: Germany and the First World War,” Accounting, Organizations and Society 16 (1991): 487–520CrossRefGoogle Scholar, esp. pp. 495–99 Germany's most important accounting theorist was Eugen Schmalenbach. See Kruk, Max, Potthoff, Erich, and Sieben, Günter, Eugen Schmalenbach: Der Mann—Sein Werk—Die Wirkung, ed. Cordes, Walter (Stuttgart, 1984)Google Scholar. Schmalenbach's, Dynamische Bilanz (Köln/Opladen, 1962, 1st ed. 1919)Google Scholar went through many editions. For an English book on Schmalenbach. See Locke, Robert, The End of the Practical Man: Entrepreneurship and Higher Education in Germany, France, and Great Britain, 1880–1940 (Greenwich, Conn., 1984)Google Scholar. For present–day analyses, see Harris, Trevor S. and Brothers, Salomon, Understanding German Financial Statements: Lessons from Daimler–Benz's Listing (New York, 7 Oct. 1993)Google Scholar; and Leuz, Christian and Wüstemann, Jens, “The Role of Accounting in the German Financial System,” in The German Financial System, eds. Krahnen, Jan P. and Schmidt, Reinhard H. (Oxford, 2004), 450–81CrossRefGoogle Scholar. Finally, see Markus, Hugh B., The History of the German Public Accounting Profession (New York, 1997)Google Scholar.

¹³ Franks, Julian, Mayer, Colin, and Wagner, Hannes F., “The Origins of the German Corporation—Finance, Ownership and Control,” CEPR Early Securities Market Conference, Oct. 2004 (Mar. 2005): 8.Google Scholar

¹⁴ See Baskin, Jonathan Barron and Miranti, Paul J. Jr., A History of Corporate Finance (Cambridge, U.K., 1997), 167–209CrossRefGoogle Scholar.

¹⁵ Berle, Adolf A. and Means, Gardiner C., The Modern Corporation and Private Property (New Brunswick, N.J., 2002; 1st ed., 1932).Google Scholar

¹⁶ Evans, Lisa, “Auditing and Audit Firms in Germany before 1931,’ Accounting Historians Journal 30 (Dec. 2003): 29–66CrossRefGoogle Scholar. Our analysis has many points in common with her good discussion, but Evans focuses on the slow development of statutory audits and finds more parallels in the two systems up to 1931– For a focus on attitudinal differences, see Demski, Joel S. et al., “Some Thoughts on the Intellectual Foundations of Accounting,” Accounting Horizons 16 (June 2002): 157–69CrossRefGoogle Scholar. See also Harston, Mary, “The German Accounting Profession–1931 and Before: A Reflection of National Ideologies,” Accounting Historians Journal 20 (Dec. 1993): 139–45CrossRefGoogle Scholar.

¹⁷ Assmann, Heinz-Dieter, “Corporate Governance im Schnittfeld von Gesellschaftsrecht und Kapitalmarktrecht,” Bankrecht und Kapitalmarktrecht in der Entwicklung, eds. Ekkenga, Jens, Hadding, Walther, and Hammen, Horst (Berlin, 2003), 1–17Google Scholar; Merkt, Hanno, Unternehmenspublizität: Offenlegung von Unternehmensdaten als Korrelat der Marktteilnahme (Tübingen, 2001), esp. 62–73Google Scholar, 92–102.

¹⁸ Pierenkemper, Toni, “Zur Finanzierung von Industriellen Unternehmensgründungen im 19. Jahrhundert—mit einigen Bermerkungen über die Bedeutung der Familie,” in Zur Geschichte der Unternehmensfinanzierung, ed. Petzina, Dietmar (Berlin, 1990), 37–55Google Scholar.

¹⁹ Ferguson, Niall, The Cash Nexus (New York, 2001), 311–13Google Scholar.

²⁰ Helfferich, Karl, Georg von Siemens: Ein Lebensbild aus Deutschlands groβer Zeit, vol.2 (Berlin, 1921), 220–25Google Scholar.

²¹ See Chandler, Alfred D. Jr., ed., The Railroads: The Nation's First Big Business (New York, 1965)Google Scholar; and Chandler, , The Visible Hand (Cambridge, Mass., 1977)Google Scholar. Also Miranti, Paul J. Jr., “The Mind's Eye of Reform: The ICC's Bureau of Statistics and Accounts and a Vision of Regulation, 1887–1940,” Business History Review 63 (Autumn 1989): 469–509CrossRefGoogle Scholar. The key figure was Henry Carter Adams. See Adams, Henry C., American Railway Accounting: A Commentary (New York, 1918). The Interstate Commerce Commission (ICC) published annually the Statistics of Railways of the United States.Google Scholar

²² Miranti, Paul J. Jr., “Associationalism, Statism, and Professional Regulation: Public Accountants and the Reform of the Financial Markets, 1896–1940,” Business History Review 60 (Autumn 1986): 438–68CrossRefGoogle Scholar, esp. 447; and Miranti, “Mind's Eye of Reform,” 475–85.

²³ Quote from a former statistician for the Lehigh Valley Railroad, quoted in Eaton, J. Shirley, Handbook of Railroad Expenses (New York, 1913), quote on p. 5Google Scholar.

²⁴ Adams, American Railway Accounting. Clark, John Maurice, Social Control of Business (Chicago, 1926), pp. 320–33Google Scholar. Quote from Hooper, William E., Railroad Accounting (New York, 1915), 2Google Scholar.

²⁵ Wilkins, History of Foreign Investment, 197–98; Baskin and Miranti, A History of Corporate Finance, 146–57.

²⁶ Gömmel, Rainer, “Entstehung und Entwicklung der Effektenborse im 19: Jahrhundert bis 1914,” in Deutsche Börsengeschichte, ed. Pohl, Hans (Frankfurt am Main, 1992), 144Google Scholar. It also listed six U.S. federal government bonds, nineteen bonds of U.S. states, and twenty U.S. municipal bonds.

²⁷ Wilkins, History of Foreign Investment, 169.

²⁸ Tufano, Peter, “Business Failure, Judicial Intervention, and Financial Innovation: Restructuring U.S. Railroads in the Nineteenth Century,” Business History Review 71 (Spring 1997): 1–40CrossRefGoogle Scholar (figure, p. 2). Also Long, J. Bradford De, “Did J.P. Morgan's Men Add Value?” in Inside the Business Enterprise: Historical Perspectives on the Use of Information, ed. Temin, Peter (Chicago, 1991), 205–49Google Scholar; Thompson, Slason, Cost Capitalization and Estimated Value of American Railways: An Analysis of Current Fallacies (Chicago, 1908).Google Scholar

²⁹ For specifics, see “Reorganization of the Northern Pacific Company, Plan of Reorganization,” HADB (Haupt Archiv Deutsche Bank), A–1149; and “Reorganization of the Northern Pacific Company, Announcement by the Reorganization Committee,& rdquo; HADB, A–1149. Also see Kobrak, Cooperation, Conflict, Men, and Markets (forthcoming).

³⁰ For a first–rate history of the German audit industry, see Quick, Reiner, “The Formation and Early Development of German Audit Firms,” Accounting, Business & Financial History 15 (Nov. 2005): 317–43CrossRefGoogle Scholar.

³¹ Miranti, “The Mind's Eye of Reform,” 469–509; Adams, American Railway Accounting; Ripley, William Z., Railroads: Rates and Regulations (New York, 1920), 487–521Google Scholar, 557–79. Tufano, “Business Failure, Judicial Intervention, and Financial Innovation.” See Tufano for a description of financial innovations that included contingent–charge securities, deferred coupon debt, or voting trusts. Also Clark, Social Control of Business, 334-47

³² “Registered securities” means that the names of the individual owners are recorded; collection depends on the identity of the owner. “Bearer shares” means that the person holding the certificate can collect. Fremdling, Rainer, Eisenbahnen und deutsches Wirtschaftswachstum 1840–1879 (Dortmund, 1985), 132–63Google Scholar; figures from pp. 22–34. See Gall, Lothar and Pohl, Manfred, Die Eisenbahn in Deutschland: Von den Anfängen bis zur Gegenwart (Munich, 1999)Google Scholar; Then, Volker, Eisenbahnen und Eisenbahnunternehmer in der Industriellen Revolution: Ein Preussisch/Deutsch–Englischer Vergleich (Göttingen, 1997)CrossRefGoogle Scholar. Then also examines the social structure of railway shareholders. See also Gömmel, “Entstehung und Entwicklung der Effektenbörse,” in Deutsche Börsengeschichte, 138–63.

³³ See Stern, Fritz, Gold and Iron: Bismarck, Bleichroder, and the Building of the German Empire (New York, 1977), 209–18Google Scholar.

³⁴ Schmaltz, Kurt, Bilanz-und Betriebsanalyse in Amerika (Stuttgart, 1927), 11Google Scholar.

³⁵ Krooss, Herman E. and Blyn, Martin R., A History of Financial Intermediaries (New York, 1971), 130Google Scholar.

³⁶ Continental European antitrust thinking is still oriented toward protecting competitors from more powerful companies that might promote economic efficiencies to lower customer prices. See Evans, David S., “The New Trustbusters: Brussels and Washington May Part Ways,” Foreign Affairs (Jan./Feb. 2002): 14–20Google Scholar; Freyer, Tony, Regulating Big Business: Antitrust in Great Britain and America, 1880–1990 (Cambridge, U.K., 1992)CrossRefGoogle Scholar; and Fear, Organizing Control, 235–60.

³⁷ Baskin and Miranti, History of Corporate Finance, 167–209.

³⁸ See especially the work of Eube, Steffen, Der Aktienmarkt in Deutschland vor dem Ersten Weltkrieg—Eine Indexanalyse (Frankfurt am Main, 1998)Google Scholar. See also Tilly, Richard, “Public Policy, Capital Markets, and the Supply of Industrial Finance in Nineteenth–Century Germany,” in The State, the Financial System and Economic Modernization, eds. Sylla, Richard, Tilly, Richard, and Tortella, Gabriel (Cambridge, U.K., 1999), 134–57Google Scholar; Tilly, Richard, “An Overview on the Role of the Large German Banks up to 1914,” in Finance and Financiers in European History, 1880–1960, ed. Cassis, Youssef (Cambridge, U.K., 1992), 93–110Google Scholar.

³⁹ Eube, Der Aktienmarkt, 30,175; and Rajan and Zingales, “The Great Reversals,” 12–17. Raj an and Zingales recently demonstrated that the stock–market capitalization of most countries in 1913 was generally not equaled until 1990. Stock–market capitalization of Austria (76 percent), Belgium (99 percent), France (78 percent), the Netherlands (56 percent), Sweden (47 percent), and Switzerland (58 percent) were all higher than Germany's. Equity as a proportion of gross fixed–capital formation was 23 percent in Belgium, 14 percent in France, 38 percent in the Netherlands, and 14 percent in Britain. The number of listed companies per million inhabitants was 108.7 in Belgium, 13.29 in France, 6.32 in Italy, 65.87 in the Netherlands, and 47.06 in Britain. See also Deutsche Aktien–Institute (DAI), 2004.

⁴⁰ Eube, Der Aktienmarkt in Deutschland, 188; Tilly, “An Overview on the Role of the Large German Banks,” 93–110, esp. p. 102; Franks, Mayer, and Wagner, “The Origins of the German Corporation.” For a review of the literature, see Fohlin, Caroline, “Universal Banking in Pre-World War I Germany: Model or Myth?” Explorations in Economic History 36 (1999):305–43CrossRefGoogle Scholar; and “The History of Corporate Ownership and Control in Germany,” in The History of Corporate Governance around the World: Family Business Groups to Professional Managers, ed. Morck, Randall (Chicago, 2005)CrossRefGoogle Scholar, available as an NBER paper (2004). While we can discern the broad magnitude, researchers still need to gather key variables for one or both markets, especially the number of shareholders, turnover, distribution of shareholdings, and breakdown of internal bank versus market exchanges. Problems with the accuracy of contemporary data and their statistical comparability still exist.

⁴¹ Quick, “Formation and Early Development of German Audit Firms,” 320–39.

⁴² Quoted in Eube, Der Aktienmarkt in Deutschland, 36; on the important 1896 Exchange Act, see 43–49– For prewar developments, see Fear and Kobrak, “Origins of German and American Accounting and Corporate Control”; Emery, Henry Crosby, “The Results of the German Exchange Act of 1896,” Political Science Quarterly 13 (1898): 286–320CrossRefGoogle Scholar; Fohlin, Caroline, “Regulation, Taxation and the Development of the German Universal Banking System, 1884–1913,” European Review of Economic History 6 (2002): 221–54CrossRefGoogle Scholar; Glagau, Otto, Der Börsen und Gründungs-Schwindel in Deutschland (Leipzig, 1877)Google Scholar; and Weber, Max, Börsenwesen, Schriften und Reden 1893–1898, ed. Borchardt, Knut (Tubingen, 1999).Google Scholar

⁴³ Berghahn, Volker, Modern Germany (Cambridge, U.K., 1982), 287Google Scholar.

⁴⁴ Calculated from the tables in Deutsches Geld- und Bankwesen in Zahlen, 1876–1975, ed. Bundesbank, Deutsche (Frankfurt am Main, 1976), 274Google Scholar.

⁴⁵ Balderston, Theo, The Origins and Course of the German Economic Crisis (Berlin, 1993), 203–14Google Scholar, quote from p. 212.

⁴⁶ Reibnitz, K. v., “Der international Effektenkapitalismus und Deutschlands Wiederaufbau,” Der Wirtschaftsprüfer (May 1932): 185–87.Google Scholar

⁴⁷ Franks, Mayer, and Wagner, “Origins of the German Corporation,” Table 11.

⁴⁸ Berle and Means, The Modern Corporation and Private Property, figures from pp. 52–58. Estimates of the number of shareholders differ.

⁴⁹ Baskin and Miranti, History of Corporate Finance, 167; Kroos and Blyn, History of Financial Intermediaries, 130.

⁵⁰ See Reckendrees, Alfred, Das “Stahltrust”-Projekt: Die Gründung der Vereinigte Stahlwerke A.G. und ihre Unternehmensentwicklung 1926–1933/34 (Munich, 2000), 278–91Google Scholar, 471–507. Such pyramiding was not completely unheard of in the United States, especially in utilities. See Bonbright, James C. and Means, Gardiner C., The Holding Company: Its Public Significance and its Regulation (New York, 1932).Google Scholar

⁵¹ Previts and Merino, History of Accountancy in the United States, 250.

⁵² Parrish, Michael E., Securities Regulation and the New Deal (New Haven, 1970), 31–34Google Scholar.

⁵³ On the prewar state of the profession, see Previts and Merino, History of Accountancy in the United States; Miranti, Accountancy Comes of Age.

⁵⁴ Quote from Miranti, Accountancy Comes of Age, 129. See also Miranti, “Associationalism, Statism, and Professional Regulation,” 448–57– Previts and Merino, History of Accountancy in the United States, 237–41.

⁵⁵ See Montgomery, Robert H., Auditing, Theory and Practice (New York, 1912), 80–130Google Scholar. Montgomery provided one of t he standard works and had already made many of these points; it went through numerous editions. See especially, Schmaltz, Bilanz-und Betriebsanalyse in Amerika, 3–30; and Previts and Merino, History of Accountancy in the United States. The authors have also examined sixty German financial statements of fifteen firms, for example. Only one showed gross profit.

⁵⁶ For a good, brief discussion of American securities law before the 1930s, see Burk, James, Values in the Marketplace: The American Stock Market under Federal Securities Law (New York, 1988), 167–74Google Scholar. For post–1933 developments, see McCraw, Prophets of Regulation. See Roe, Mark, “Delaware's Competition,” Harvard Law Review 116 (2003): 588CrossRefGoogle Scholar, on the limits of state power to determine corporate law.

⁵⁷ Henning, “Die externe Unternehmensprüfung,” 17–18. Bankmann, “Entwicklung des Wirtschaftsprüferstandes,” 174–75. Markus, History of the German Public Accounting Profession, 1–6. Schmaltz, Bilanz– und Betriebsanalyse inAmerika, 21–23.

⁵⁸ Markus, Hugh B., “Der Wirtschaftsprüferberuf: Eine geschichtliche Kurzfassung,” Wirtschaftspruferkammer Mitteilungen 31 (Feb. 1992)Google Scholar: 1–10; Markus, History of the German Public Accounting Profession, 12–17; Previts and Merino, History of Accountancy, 175–234

⁵⁹ Franz, Heike, “Kulturelles Milieu und Disziplinbildung: Die Entstehung der Betriebswirtschaftslehre in Deutschland 1900 bis 1933,” in Wissenschaftsgeschichte Heute, eds. Büschenfeld, Jürgen, Franz, Heike, Kuhlemann, und Frank–Michael (Bielefeld, 2001), 251–77Google Scholar. On universities and business economics, see Franz, Heike and Kieser, Alfred, “Die Frühphase der Betriebswirtschaftslehre an Hochschulen (1898–1932): Von der Handelstechnik zur Betriebswirtschaftslehre als Wissenschaft,” in Entwicklungen der Betriebswirtschaftslehre: 100 Jahre Fachdisziplin—zugleich eine Verlagsgeschichte, eds. Gaugler, Eduard and Kohler, Richard (Stuttgart, 2002), 60–85Google Scholar, esp. 71–76. On Schmalenbach, see Kruk, Potthoff, Sieben, Eugen Schmalenbach, 50–57. On accounting and business economics, see Küpper and Mattessich, “Twentieth Century Accounting Research in the German Language Area,” 346–47.

⁶⁰ Previts and Merino, History of Accountancy, 256.

⁶⁰ Markus, History of the German Public Accounting Profession, 1–62; Hugh Markus, “British and U.S. Accounting Firms in Germany,” unpublished manuscript, 3. According to Jorg Bankmann, in “Entwicklung des Wirtschaftsprüferstandes,” 178, by 1934 Germany had 770 public chartered accountants (defined in the narrowest sense) and 92 auditing companies. See American Institute of Accountants, 1929 Year Book of the American Institute of Accountants (1929)Google Scholar, 56–101; New York State Society of Certified Public Accountants, Yearbook (Nov. 1930)Google Scholar, 11–69. In both cases, the U.S. count was estimated by taking the number of asterisked names (CPAs) on sample pages and multiplying by the total pages. See also Stevens, Mark, The Big Eight (New York, 1981), 4Google Scholar.

⁶² Quote from Previts and Merino, History of Accountancy in the United States, 239. Also see Miranti, “Mind's Eye of Reform,” 485–93. On the politics of conferring this professional certification, see Miranti, Accountancy Comes of Age, 4 8–8 5. On “fair return” and “fair value,” see Bonbright, James C., Railroad Capitalization: A Study of the Principles of Regulation of Railroad Securities (New York, 1920), quote from p. 53Google Scholar on the impact of stockwatering.

⁶³ Clark, Social Control of Business, esp. 334–47; see his assessment on p. 345.

⁶⁴ Miranti, Accountancy Comes of Age, 128–29.

⁶⁵ Previts and Merino, History of Accountancy, 251–53; and Miranti, “Associationalism, Statism, and Professional Regulation,” 459–60.

⁶⁶ Bonbright, Railroad Capitalization, 82–88.

⁶⁷ Previts and Merino, History of Accountancy in the United States, 261.

⁶⁸ Quote from Miranti, “Associationalism, Statism, and Professional Regulation,” 465. For further discussion of these developments, see Miranti, Accountancy Comes of Age, 146–77. Also see McCraw, Thomas K., “With the Consent of the Governed: SEC's Formative Years,” Journal of Policy Analysis and Management 1 (Spring 1982): 346–70CrossRefGoogle Scholar; and Parrish, Securities Regulation and the New Dea

⁶⁹ In many national accounting systems, the distinction between what belongs to third parties and what belongs to the holders of common equity is still not absolutely clear. The elementary accounting equation in most continental countries is still expressed as assets = passives. To be sure, accountants in all countries understand the distinction, but the authors have discussed this point with several practicing accountants, who agree that enshrining the distinction in the basic accounting equation reinforces it in t h e minds of students and professionals alike.

⁷⁰ Küpper and Mattessich, “Twentieth Century Accounting Research in t h e German Language Area,” 345–410.

⁷¹ Franz and Kieser, “Frühphase der Betriebswirtschaftlehre,” 76–79; Küpper and Mattesich, “Twentieth Century Accounting Research,” 357–59.

⁷² Feldman, Gerald, The Great Disorder: Politics, Economics, and Society in the German Inflation, 1914–1924 (Oxford, 1993), 299Google Scholar, 581.

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⁷⁵ Wirtz, Carl, “Der Betriebsverglich dargestellt unter Berücksichtigung des Schrifttums,” Annalen der Betriebswirtschaft 2 (1928): 434–55, quote from p. 437Google Scholar; and “Unternehmungsvergleich, dargestellt auf Grund des deutschen und amerikanischen Schrifttums,” Annalen der Betriebswirtschaft 2 (1928): 525–30Google Scholar. On the role of banks in promoting good accounting standards, see Schmaltz, Bilanz– und Betriebsanalyse in Amerika, 16–21.

⁷⁶ Schmaltz, Bilanz– und Betriebsanalyse in Amerika, 31–65, 87–96, 137–39, quote on p. 91, from Gilman, p. 138. Schmaltz relied on Gilman, Stephen, Analyzing Financial Statements (New York, 1925)Google Scholar, Introduction.

⁷⁷ Merkt, Unternehmenspublizität, 71–72, with literature cited; Wöhe, Günter, Bilanzierung und Bilanzpolitik (Munich, 1987), 55–59Google Scholar; Eierle, Brigitte, “Differential Reporting in Germany—A Historical Analysis,” Accounting, Business & Financial History 15 (Nov. 2005): 286CrossRefGoogle Scholar.

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⁷⁹ Merkt, Unternehmenspublizitdt, 94–96. Anecdote from Kruk, “Leben und Wirken Schmalenbachs,” Eugen Schmalenbach, 102–5; Leuz und Wüstermann, “Role of Accounting,” 456–57.

⁸⁰ Forrester, Eugen Schmalenbach, 117.

⁸¹ Osbahr, Wilhelm, Die Bilanz vom Standpunkt der Unternehmung (Berlin, 1918)Google Scholar, quoted in Forrester, Eugen Schmalenbach, 148–49.

⁸² Quoted in Merkt, Unternehmenspublizität, 94. From Flechtheim, Julius, “Vom Aktienwesen in den Vereinigten Staaten,” Zeitschrift für ausländisches und Internationales Privatrecht 3 (1929): 101–19Google Scholar.

⁸³ Schmalenbach's chart of accounts proved immensely successful throughout Europe, even in Japan. Unfortunately, it also proved useful in the Soviet Union and Nazi Germany because it enhanced control over enterprises under fixed–price regimes. The Nazi regime made his uniform chart of accounts mandatory after 1939 and introduced it to their conquered countries. The Soviet Union and its satellite countries in Eastern Europe kept using it in its purest form into the 1990s. Most German businesses also utilize a revised form of Schmalenbach's chart of accounts to this day. See Schmalenbach, Eugen, ‘Der Kontenrahmen,” Zeitschrift für handelswissenschaftliche Forschung 21 (1927): 385–402Google Scholar, 433–75; Schweitzer, Marcell, “Eugen Schmalenbach as the Founder of Cost Accounting in the German–Speaking World,” in Studies in Accounting History: Tradition and Innovation for the Twenty–First Century, eds. Tsuji, Atsuo and Garner, Paul (Westport, Conn., 1995), 29–43Google Scholar; Potthoff, Erich, “Betriebswirtschaftslehre in der Zeit des Nationalsozialismus (1933–1945) bei politischer Gleichschaltung und staatlicher Wirtschaftslenkung,” in Entwicklungen der Betriebswirtschaftslehre: 100 Jahre Fachdisziplin—zugleich eine Verlagsgeschichte, eds. Köhler, Richard and Gaugler, Eduard (Stuttgart, 2002), 87–110Google Scholar; Hanns Martin Schoenfeld, “Eugen Schmalenbach,” 515–16; Bahr, Gottfried and Fischer-Winkelmann, Wolf F., Buchführung und Jahresabschluss (Wiesbaden, 1998), 5CrossRefGoogle Scholar; Locke, End of the Practical Man, 178–86. On Schmalenbach's role in the Vereinigte Stahlwerke, see Fear, Organizing Control, 584–93; Küpper and Mattessich, “Twentieth Century Accounting Research in the German Language Area,” 360–65.

⁸⁴ Miranti, Accountancy Comes of Age, 128–42, quote from p. 134.

⁸⁵ Related in Wirtz, “Der Betriebsvergleich,” 455.

⁸⁶ McNeil, William C., American Money and the Weimar Republic (New York, 1986), 18–19Google Scholar.

⁸⁷ Dr. Otto Frielinghaus, quoted in Markus, History of the German Public Accounting Profession, 14.

⁸⁸ Price Waterhouse report to Phoenix AG, 13 Feb. 1926, Mannesmann–Archiv: P 52529.Google Scholar

⁸⁹ The Thyssen discussion is based on Fear, Organizing Control, 489–506.

⁹⁰ Leuz and Wüstemann, “The Role of Accounting in the German Financial System”; Ashbaugh, Hollis and Warfield, Terry D., “Audits as a Corporate Governance Mechanism: Evidence from the German Market,” Journal of International Accounting Research 2 (2003): 1–21CrossRefGoogle Scholar. This disconnect between sophisticated insider information and thin disclosure to outsiders became prevalent by the late twentieth century. Highly sophisticated, state–of–the–art audit reports played a crucial role in German corporate governance, but these were often made available only to the executive and the supervisory board.

⁹¹ Fear, Organizing Control, 584–606, 651–58; Dinkelbach, Heinrich, “Das Wesen und der Aufbau der industriellen Konzernbilanz,” Zeitschrift jür Handelswissenschaftliche Forschung 35 (1941): 55–66Google Scholar.

⁹² In the United States, when a parent company has less than 20 percent ownership, the cost method is utilized. Investment stays at cost and dividends are recorded as income. At 20 to 50 percent of equity, investment is recorded at cost. A percent share of income is recorded as income, then added to value of investment. Dividends are added to cash, which reduces book value of investment. At over 50 percent, full consolidation is utilized, and all assets and liabilities are added with the parent; minority interest is recorded as liability; and income less minority owners’ portion is recorded as an expense. The basics of these rules existed already by the 1920s and 1930s, although standards were still debated and did not have the force of law until the late 1930s. IAS standards are similar to those of the United States, with some minor differences. In the absence of American auditors, German firms almost always used the cost method, even if ownership was 100 percent. Therefore, one could not know what a subsidiary was worth and how it contributed to the Konzern, even in accounting terms, unless one had its financial statements in hand. In 1986, under EC guidelines, Germans changed the rules to conform with American standards.

⁹³ Vereinigte Stahlwerke AG, 1933/34 Annual Report, Mannesmann–Archiv (MA): R 140 351.

⁹⁴ Quick, Reiner, “Die Entstehungsgeschichte der Aktienrechtlichen Pflichtprüfung in Deutschland,” Zeitschriftfür Unternehmensgeschichte, no. 1 (1990): 229Google Scholar.

⁹⁵ Economist, 19 Oct. 1929, 721Google Scholar.

⁹⁶ Markus, History of the German Public Accounting Profession, 27–34; quote from pp. 27–28; “ghastly” from p. 34.

⁹⁷ Merkt, Unternehmenspublizität, 96–98.

⁹⁸ Brockhage, Dr. Bernhard, Geleitwort, Der Wirtschaftsprüfer 1, no.1 (Jan. 1932): 1–2Google Scholar.

⁹⁹ Weiss, Dr. Alfred, “Stille Reserven und ihre Auflösung nach der Aktienrechtsnovelle vom 19 September 1931,” Der Wirtschaftspüfer 1, no. 2 (Jan. 1932): 35–39Google Scholar: in the same issue, see Dr. Otto Keinzle, “Die Gewinn– und Verlustrechnung nach dem geänderten Handelsgesetz,” 243—44.

¹⁰⁰ Mezger, Dr. Fritz, “Die amerikanischen Accountants und der deutsche Wirtschaftsprüfer,” Der Wirtschaftsprüfer 1, no. 10 (May 1932): 191–93Google Scholar.

¹⁰¹ McCraw, Prophets of Regulation, pp. 1 89–92. See discussions of Accounting Research Bulletins (ARBs) in Williams, Jan R., GAAP Guide (New York, 2000)Google Scholar.

¹⁰² Quick, “Entstehungsgeschichte,” 122–41; Eierle, “Differential Reporting in Germany,” 286–87. During the nineteenth and twentieth centuries, German accounting principles were alternately embodied in corporate law or commercial law statutes, or sometimes in some combination of the two.

¹⁰³ See esp. Spoerer, Von Scheingewinnen zum Rüstungsboom, 62–95. In the 1920s especially, tax authorities influences American accounting developments, but financial reporting and tax reporting were never required to be identical in all statements. One current requirement, however, requires identical treatment for inventory flows.

¹⁰⁴ Feldman, Gerald D., “Foreign Penetration of German Enterprises after the First World War: The Problem of Überfremdung,” in Historical Studies in International Corporate Business, eds. Teichova, Alice et al. (Cambridge, U.K., 1989), 87–111CrossRefGoogle Scholar.

¹⁰⁵ Antrick, Otto, general manager, Chemische Fabrik (Vormals. E. Schering): memo to file, 11 Dec. 1919, Schering Archiv B2/122.Google Scholar

¹⁰⁶ Köhler, Bernard, “Nationalsozialistische Rationalisierung,” Zeitschrift für Organisation 10 (25 May 1936): 73–77Google Scholar.

¹⁰⁷ Markus, History of the German Public Accounting Profession, 14–15 53; Quick, “Entstehungsgeschichte,” 228.

¹⁰⁸ Markus, History of the German Public Accounting Profession, 50.

¹⁰⁹ Potthoff, “Schmalenbachs Leben und Wirken,” 142; Kruk, Potthoff, and Sieben, Eugen Schmalenbach, 150–53

¹¹⁰ Markus, History of the German Public Accounting Profession, 64–70, 78, 83–93. Markus delineates the ideological positions taken by the Institut in support of the new regime between 1934 and 1937, as well as discussing the Jews who were expelled from the Institut. Roughly nine percent of the Institut's members were Jewish (nearly half of these had served on the front line in World War I). By comparison, 16 percent of Germany's lawyers were Jewish, but they could practice their profession only under severe constraints. See Friedlônder, Saul, Nazi Germany and the Jews (London, 1997), 29Google Scholar.

¹¹¹ Mönckmeier, Dr. Otto, “Der unabhängige Wirtschaftstreuhändler,” in Der Wirtschaftstreuhôndler 5, no. 1 (Jan. 1936): 1–2Google Scholar; Potthoff, “Betrtiebswirtschaftslehre im Nationalsozialismus.”

¹¹² Merkt, Unternehmenspublizitdt, 97n341. Except for the “leadership principle,” which was clearly of Nazi origin, there is still some debate over how Nazified this law was. Many reforms, like, for instance, the organization and principles of financial statements, were discussed in the 1920s. See Hayes, Peter, Industry and Ideology (Cambridge, U.K., 1987), 168Google Scholar; and Kobrak, Christopher, “Politics, Corporate Governance, and the Dynamics of German Managerial Innovation: Schering AG between the Wars,” Enterprise & Society 3 (Sept. 2002): 421–61.CrossRefGoogle Scholar

¹¹³ Nobes, Christopher and Parker, Robert, Comparative International Accounting (London, 1998), 221–23Google Scholar; Eierle, “Differential Reporting in Germany, 290.

¹¹⁴ Cordes, Walter, “Die Bedeutung des Konzernabschlusses für die Konzernführung,” in Wirtschaft und Wirtschaftsprüfung, ed. Mellerowicz, Konrad and Bankmann, Jörg (Stuttgart, 1966), 50–68Google Scholar; Merkt, Unternehmenspublizitat, 98–113.

¹¹⁵ Rajan and Zingales, “The Great Reversals,” Table 3. For similar arguments as well as present practices, see Potthoff, Erich and Trescher, Karl, Das Aufsichtsratsmitglied: Ein Handbuch der Aufgaben, Rechte und Pflichten (Stuttgart, 2003), 327–84Google Scholar; and Ashbaugh and Warfield, “Audits as a Corporate Governance Mechanism.”

¹¹⁶ Währisch, Mark, The Evolution of International Accounting Systems (Frankfurt am Main, 2001), 35–54Google Scholar

¹¹⁷ Eierle, “Differential Reporting in Germany,” 296–97.

¹¹⁸ Baetge, Jorg, Kirch, Hans-Jürgen, and Theil, Stefan, Bilanzen (Düsseldorf, 2001), 12–25Google Scholar.

¹¹⁹ Nobes and Parker, Comparative International Accounting, 310–11. This distinction between an economic and a legalistic conception of the firm became a major problem for tax law in Germany during the 1920s due to the growth of Konzerne, multisubsidiary operations. A body of case law built around the theory of corporate agency (Organschaftstheorie) developed. See Fear, Organizing Control, ch. 12.

¹²⁰ See Giddens, Anthony, “Time and Social Organization,” in his Social Theory and Modern Sociology (Stanford, 1987), 140–65Google Scholar.