Access to Stock Markets for Small and Medium-Sized Growth Firms: The Temporary Success and Ultimate Failure of Germany's Neuer Markt

Abstract

Germany’s Neuer Markt was the largest of numerous new stock markets introduced in Europe during the nineties of the last century to address small and medium sized innovative growth firms. We argue that access to public equity markets is particularly valuable for such firms. However, the conception of the Neuer Markt contained some regulatory flaws, and the Neuer Markt developed along with a tremendous stock price bubble that broke clamorously in early 2000. As a consequence, the reputation of the Neuer Markt suffered from an extraordinary decline in market value and numerous scandals and insolvencies. Primary markets came to an almost complete standstill, and the Neuer Markt had to be abandoned at the end of 2002. Thus, apart from the window of opportunity provided by the short-lived Neuer Markt, the question of how German innovative growth firms could enter public equity markets remains unresolved. From this state of affairs, we expect negative effects on innovation and growth in the German economy.