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The Demise of Investment Banking Partnerships: Theory and Evidence




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    • Alan D. Morrison is from the University of Oxford Saïd Business School and the Center for Economic Policy Research. William J. Wilhelm is from the University of Virginia McIntire School of Commerce and the Center for Economic Policy Research. The authors are grateful to Raj Aggarwal, Ben Esty, Eric Hughson, Heski Bar-Isaac, Pete Kyle, Chris Leach, Alexander Ljungqvist, Colin Mayer, Ed Perkins, Carola Schenone and an anonymous referee for useful conversations and to seminar participants at the Cambridge Endowment for Research in Finance, the University of Western Ontario, the University of Colorado at Bolder, Tanaka Business School (Imperial College), the London School of Economics, the University of Southern Carolina, the University of Frankfurt and the American Finance Association meetings in Boston, 2006 for helpful comments. The authors thank Stuart Glass and Steven Wheeler at the NYSE archives for their considerable patience and for assistance with the use of exchange records. Brendan Abrahms, Thomas Knull, Mary Weiskopf, and David Wilhelm provided valuable research assistance.


In 1970 the New York Stock Exchange relaxed rules that prohibited the public incorporation of member firms. Investment banking concerns went public in waves, with Goldman Sachs the last of the bulge bracket banks to float. We explain the pattern of investment bank flotations. We argue that partnerships foster the formation of human capital and we use technological advances that undermine the role of human capital to explain the partnership's going-public decision. We support our theory using a new data set of investment bank partnership statistics.