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⁴ On rating agencies see Millon, M. and Thakor, A., ‘Moral hazard and information sharing: a model of financial information gathering agencies’, Journal of Finance, 40 (1985)CrossRefGoogle Scholar; on monitoring effort see Jensen, M. and Meckling, W., ‘Theory of the firm: managerial behaviour, agency costs and ownership structure’, Journal of Financial Economics, 3 (1976)CrossRefGoogle Scholar; and on checking outcome reports see Townsend, R., ‘Optimal contracts and competitive markets with costly state verification’, Journal of Economic Theory, 21 (1982).Google Scholar

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⁷ Berlin, M. and Loeys, J., ‘Bond convenants and delegated monitoring’, Journal of Finance, 43 (1988).CrossRefGoogle Scholar

⁸ See M. Aoki, Attributes of the Japanese firm as a connective system: survey and a research agenda, mimeo (Stanford University, 1992); C. Calomiris, The cost of rejecting universal banking: American finance in the German mirror, 1870–1914, mimeo (University of Illinois, 1992); Cameron, Banking; Gerschenkron, Economic Backwardness; and Riesser, J., The Great German Banks (Washington, DC, 1911)Google Scholar. Daems, H., The Holding Company and Corporate Control (Boston, Mass., 1978)CrossRefGoogle Scholar; Stiglitz, J. and Weiss, A., ‘Incentive effects of termination: application to the credit and labor markets’, American Economic Review, 73 (1989)Google Scholar; and Greenwald, B. and Stiglitz, J., ‘Information, finance and markets: the architecture of allocative mechanisms’, Industrial and Corporate Change, 1 (1992) provide a more theoretical approach.CrossRefGoogle Scholar

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¹⁰ Mayer, C., ‘Financial systems, corporate finance, and economic development’, in Hubbard, G. (ed.), Asymmetric Information, Corporate Finance and Investment (Chicago, 1988) argues that, without some control by banks, competition among them may hinder long-term finance; banks know that, after refinancing their clients, these can turn to a new financier (with better conditions), and would refrain from lending. However, von Thadden, Bank finance, showed that, even without problems of commitment, asymmetric information alone can hinder long-term finance.Google Scholar

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¹² See Tilly, Financial Institutions; Pohl, M., ‘Die Entwicklung des deutschen Bankwesen zwischen 1848 und 1870’, in Deutsche Bankesgeschichte (Frankfurt-a.-M., 1982)Google Scholar; and Pohl, ‘Forms and phases’.

¹³ C. Fohlin, The role of financial intermediation in industrial development: the case of the German Kreditbanken, 1871–1914, mimeo (University of California, Berkeley, 1993), examining the effects of bank directorships on firms' investment decisions, also chooses 1895 as an appropriate break point.

¹⁴ Four from the group comprising the A. Schaaffhausen'scher Bankverein, the Bank für Handel und Industrie (‘Darmstädter’), the Berliner Handelsgesellschaft and the Disconto-Gesellschaft, together with the Deutsche Bank and the Dresdner Bank (both founded after 1870), would become Großbanken (the largest among Kreditbanken).

¹⁵ See Riesser, , German Banks, pp. 44–56Google Scholar, and Cameron, ‘Founding’, who show that the programme of the Crédit Mobilier had a particular influence on these Kreditbanken, and reflected the need to have informed agents (banks) mobilise capital and actively coordinate economic activity.

¹⁶ Tilly, , Financial Institutions, p. 61; and Riesser, German Banks, Appendix III.Google Scholar

¹⁷ Tilly, Financial Institutions, ch. 5.

¹⁸ Between 1848 and 1870 the four Großbanken alone promoted eight other banks and 22 industrial enterprises (particularly large Ruhr mining companies); Pohl, M., ‘Festigung und Ausdennung des deutschen Bankwesen zwischen 1870 und 1870’, in Deutsche Bankgeschichte (Frankfurt-a.-M., 1982), p. 80Google Scholar. They also undertook numerous securities issues on behalf of existing firms; Riesser, , German Banks, pp. 62–6.Google Scholar

¹⁹ Between 1848 and June 1870 nearly 100 joint stock companies [Aktiengesellschaften] were founded, with a capitalisation of less than Ib. Marks; Feldenkirchen, , ‘Banking and economic growth’, p. 118.Google Scholar

²⁰ Riesser, German Banks and Jeidels, O., Das Vemhahnis der Deutschen Großbanken zur Industrie (Leipzig, 1908)Google Scholar notice that this practice had been common since the inception of Kreditbanken. Feldenkirchen, , ‘Banking and economic growth’, p. 120Google Scholar, and Wellhoner, V., Großbanken und Großindustrie im Kaiserreich (Göttingen, 1989), pp. 76, 121CrossRefGoogle Scholar, give several instances. The Schaaffhausen'scher obtained many directorships when founding or incorporating several Ruhr firms, and similarly the Darmstädter when it managed issues for new textile joint stock companies in south-west Germany during the late 1850s: as detailed in Feldenkirchen, , ‘Banking and economic growth’, pp. 120–1. It should be remembered that Prussian law allowed promoters to obtain directorships even when they did not retain shares.Google Scholar

²¹ Many studies of the Kreditbanken either do not consider this early phase, or dismiss it as a ‘learning period’.

²² By 1870 235 joint stock companies had been founded with a total capital of 2,073m. Marks. Between 1871 and 1873 928 were established with 2,779m. Marks of capital; see Pohl, M., Konzentration in deutschen Bankwesen (1848–1980) (Frankfurt-a.-M., 1982), pp. 143, 169Google Scholar, and Feldenkirchen, , ‘Banking and economic growth’, p. 118.Google Scholar

²³ Of the 857 joint stock companies founded between June 1870 and January 1874, at least 160 had gone bankrupt by the end of 1874: Riesser, , German Banks, p. 342Google Scholar. Between 1874 and 1879 only 318 new corporations were founded, with 281m. Marks of capital: Pohl, , Konzentration, pp. 143, 169Google Scholar. Over the same period Net National Product fell by 21%: Mitchell, B. R., European Historical Statistics (London, 1980)Google Scholar, table K1; and by 1878 the stock market index had fallen by 60%; Bundesbank, Deutsche, Deutsches Geld- und Bankwesen in Zahlen, 1876–1975 (Frankfurt-a.-M., 1976), table G1, 2.01.Google ScholarWirth, M., Geschichte der Handelskrisen (1890, reprinted New York, 1968) gives a comprehensive account of the crisis.Google Scholar

²⁴ With 723m. Marks of capital; see Riesser, German Banks, Appendix II.

²⁵ Deposit collection was already undertaken by non-industrial (savings and cooperative) banks. Privatbankiers also collected deposits from wealthy clients, but this was a secondary source of funds; see Tilly, Financial Institutions, ch. 5.

²⁶ Support to the banks' liquidity provided through the rediscounting facilities of the Reichsbank (founded in 1876) favoured this change; Neuburger, H., German Banks and German Economic Growth from Unification to World War I (New York, 1977), p. 4Google Scholar; and McGouldrick, P., ‘Operations of the German central bank and the rules of the game, 1879–1913’, in Bordo, M. and Schwartz, A. (eds), A Retrospective on the Classical Gold Standard (Chicago, 1984), p. 319.Google Scholar

²⁷ Riesser, , German Banks, pp. 259–60.Google Scholar

²⁸ Motschmann, G., Das Depositengeschaft des Berlin Großbanken (Munich, 1915), pp. 582–4Google Scholar; Riesser, , German Banks, p. 295.Google Scholar

²⁹ ibid., pp. 680–700, discusses their organisation.

³⁰ ibid., p. 689.

³¹ Several instances are found in Feldenkirchen, , ‘Banking and economic growth’, p. 127Google Scholar; and Wellhoner, , Großbanken, pp. 126, 182.Google Scholar

³² There are no systematic data for the period before 1883. The annual average for share issues, 1883–85, amounted to only 115m. Marks, and 223m. Marks for private bonds; the averages for the period 1891–95 were 149m. Marks and 168m. Marks respectively; see Deutsche Bundesbank, Deutsches Geld, table G1, 1.07.

³³ Neuburger, German Banks, details this for the early years of relations between the Deutsche Bank and Siemens & Halske.

³⁴ Aghion and Bolton, ‘Incomplete contracts approach’.

³⁵ von Thadden, Bank finance.

³⁶ The 1884 Bank Act enlarged the powers of the Aufsichtsrat vis-à-vis the Vorstand [board of managers], which spurred the interest of bank directors to sit on the former. Passow, R., ‘Die Bedeutung des Aufsichtsrats für die Aktiengesellschaft’, Tiünen Archiv, 1 (Jena, 1906) describes accurately the nature and evolution of these two bodies.Google Scholar

³⁷ See Wellhoner, , Großbanken, pp. 155, 217Google Scholar; and Feldenkirchen, , ‘Banking and economic growth’, p. 126 for some instances.Google Scholar

³⁸ Riesser, German Banks, ch. 5, describes how cartelisation during the 1870s and 1880s was led by the banks, whereas from the 1890s it was mainly determined by technological motives.

³⁹ Riesser, German Banks, Appendix VIII; Pohl, , ‘Festigung und Ausdennung’, p. 128.Google Scholar

⁴⁰ For instance, the German Union Bank, liquidated by the Deutsche Bank in 1876, had itself liquidated 11 banks; the Berlin Bankverein, liquidated by the Deutsche in 1875, 14; see Seidenzahl, F., 100 Jahre Deutsche Bank: 1870–1970 (Frankfurt-a.-M., 1979), p. 31.Google Scholar

⁴¹ In 1883 the seven Großbanken accounted for 40% of the aggregate capital of 71 Kreditbanken; in 1901 nine Großbanken (out of 125) had a share of 43% of aggregate capital, and in 1913 nine (out of 160) 43%; see Deutsche Bundesbank, Deutsches Geld, table D1, 1.01.

⁴² Jeidels, , Vernhaltnis, p. 135, gives examples where several banks co-managed issues of up to dozens of million Marks in volume. Wellhoner, Großbanken and Riesser, German Banks, appendices V-VI detail the trend towards large, co-managed issues.Google Scholar

⁴³ Jeidels, , Vernhaltnis, p. 122.Google Scholar

⁴⁴ Donabauer, K., Privatbankiers und Bankenkonzentrazion in Deutschland von der Mitte des 19.Jahrhunderts bis 1932 (Frankfurt-a.-M., 1988), p. 161.Google Scholar

⁴⁵ Net National Product grew at an average annual rate of 4.1% between 1895 and 1913, whereas between 1873 and 1890 growth averaged 1.5%; see Mitchell, Statistics, table K1.

⁴⁶ Annual averages of share and private bond issues quickly rose to 835m. Marks and 334m. Marks, respectively, 1896–1900, and 877m. Marks and 358 m. see Marks, 1906–11; see Deutsche Bundesbank, Deutsches Geld, table G1, 1.07. Wellhoner, Großbanken, thoroughly documents this trend.

⁴⁷ See Liefman, R., Cartels, Concerns and Trusts (New York, 1977)Google Scholar; and Maschke, E., ‘Outline of the history of German cartels from 1873 to 1914’, reprinted in Crouzet, F. et al. (eds), Essays in European Economic History (London, 1969).Google Scholar

⁴⁸ Troesken, W., ‘A note on the efficiency of the German steel and coal syndicates’, Journal of European Economic History, 18 (1989).Google Scholar

⁴⁹ In 1897 36 of the 100 largest German firms were active in more than five product groups; in 1907 there were 51; see Kocka, J. and Siegriest, H., ‘Die Hundert Grösten Deutschen Industrieunternehmen in Späten 19, und 20. Jahrhundert’, in Horn, N. and Kocka, J. (eds), Recht und Entwicklung der Grossuntemehmen im 19. und 20. Frühen Jahrhundert (Göttingen, 1979), p. 80Google Scholar. Workers at Siemens totalled 600 in 1872 and 57,000 in 1912, with the ratio of clerical to manual worker rising from 1: 11 (1865) to 1: 7 (1890), to 1: 3.5 (1912); see Kocka, J., ‘Capitalism and bureaucracy in German industrialization before 1914’, Economic History Review, 2nd ser., 34 (1981), pp. 457–9CrossRefGoogle Scholar. Similar changes occurred at Siemens; see Wellhoner, , Großbanken, p. 150Google Scholar. The average workforce of an iron mine increased from 251 in 1896 to 401 in 1906, in coal mines from 951 to 1,587; US National Monetary Commission, Statistics for the United States, Great Britain, Germany and France (Washington, DC, 1911)Google ScholarPubMed, tables 16, 17. Between 1900 and 1903 the creation of new industrial firms was very diversified – as shown by the share of branches in equity capital created: electricity, 6%; chemicals, 5%; modern textiles, 6%; paper and printing, 4%; and tourism, 1%; see Jeidels, , Vernhaltnis, p. 9.Google Scholar

⁵⁰ Between 1890 and 1910 3,564 new corporations were founded, with a total capital of 5,462m. Marks; see Pohl, , Konzentration, p. 169Google Scholar; and Feldenkirchen, , ‘Banking and economic growth’, p. 118.Google Scholar

⁵¹ Passow, , ‘Bedeutung’, p. 13.Google Scholar

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⁵³ Jeidels, , Vernhaltnis, p. 169.Google Scholar

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⁵⁵ Wellhoner, Großbanken, details the changes in board compositions for the firms in his sample. See also Pohl, Konzentration; idem, ‘Festigung und Ausdennung’; and Tilly, , ‘Mergers, external growth and finance in the development of large-scale enterprises in Germany 1880–1913’, Journal of Economic History, 42 (1982), for several instances.CrossRefGoogle Scholar

⁵⁶ The benefit was mutual. Großbanken had access to local capital and knowledge, and to local investors for the securities whose issues they managed; Provinzbanken were shielded from competition, provided liquidity, and could access the Berlin Stock Exchange. Seidenzahl, 100 Jahre, ch. 6, gives many instances of the working of IG.s.

⁵⁷ Riesser, , German Banks, p. 643 and Appendices VII and VIIIGoogle Scholar. Jeidels, , Vernhaltnis, pp. 91–8 lists banks participating in IG.s and describes some cases.Google Scholar

⁵⁸ Riesser, , German Banks, p. 643Google Scholar, and Pohl, , ‘Festigung und Ausdennung’, p. 127.Google Scholar

⁵⁹ Donabauer, , Privatbankiers, p. 71Google Scholar. The Bergish-Märkishe Bank, linked to the Deutsche, absorbed 24 local banks between 1895 and 1913, and made their former owners directors of the corresponding local offices.

⁶⁰ The Deutsche and the Dresdner penetrated in this way the strategic Ruhr district; see Feldenkirchen, W., ‘The banks and the steel industry in the Ruhr: development in relations: 1873–1914’, German Yearbook on Business History (1981), pp. 45–8. Seidenzahl, 100 Jahre, ch. 10, details this for the Deutsche Bank.Google Scholar

⁶¹ Tilly, ‘Mergers’, shows that successful bank concentration occurred mostly through ‘external growth’ (largely via acquisitions), rather than through ‘internal growth’ via the development of their own branch networks.

⁶² Motschmann, , Depositengeschaft, p. 582.Google Scholar

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⁶⁴ Lavington, F., The English Capital Market (London, 1921), p. 210.Google Scholar

⁶⁵ See Seidenzahl, , 100 Jahre, p. 203, for the Deutsche Bank in the mining industry.Google Scholar

⁶⁶ Riesser, German Banks, Appendix VII.

⁶⁷ Whale, , Banking in Germany, p. 50, updates the list to 1911, confirming the trend to 1911.Google Scholar

⁶⁸ Wellhoner, , Großbanken, pp. 164, 229Google Scholar, details the banks supplying Krupp with inside information, as when some lobby groups attempted to introduce a duty on aluminum in 1911, and exerting pressure on other firms to foster Krupp's interests. He also shows that Siemens frequently asked the Deutsche Bank for information about other firms.

⁶⁹ Wellhoner, Großbanken, describes the Berliner Handelsgesellschaft consulting Hibernia, through its representatives on the Aufsichtsrat, on business in general (p. 186), and particularly on financial matters (p. 192).

⁷⁰ Riesser, , German Banks, pp. 713–30.Google Scholar

⁷¹ As Wellhoner, Großbanken, says in his conclusion: ‘the services banks extended on the basis of their widely ramified knowledge of the economy were the provision of information of all kinds, from the disclosure of business possibilities to the coordination of foreign business’.

⁷² Stiglitz and Weiss, ‘Incentive effects’.

⁷³ As in Diamond, ‘Monitoring’.

⁷⁴ Wellhoner, Großbanken, has some of them in his case studies.

⁷⁵ For a theoretical elaboration along these lines, see Da Rin, Monitoring and financial intermediation: towards a new approach, mimeo (Stanford University, 1995).

⁷⁶ For instance, Feldenkirchen, ‘Banks and steel’; idem, ‘Banking and economic growth’; Jeidels, Vernhaltnis; and Pohl, ‘Festigung und Ausdennung’. Recendy, Wellhoner, Großbanken, provided an extensive empirical study, and a critique, of the traditional R. Hilferding, Finance Capital (1910; translated and reprinted, Boston, Mass., 1981) view of the supremacy of financial over industrial capital.

⁷⁷ For instances, see Jeidels, , Vernhaltnis, pp. 123–5; and Wellhoner, Großbanken.Google Scholar

⁷⁸ For instance, in the conclusion of Wellhoner, Großbanken.

⁷⁹ Cameron, , Banking, p. 9.Google Scholar