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Mixed Companies

Mixed companies are usually formed through the merger of capital funds or companies that are not closely related in their functions in a bid to create bigger capital funds or companies. After the 1960s, during the diversification of the production and operation of large companies, investment banks became important targets to mergers and acquisitions for the formation of mixed companies. In periods of economic growth, due to the pro-cyclical nature of investment banks, the increase of market demand drives their fast development. In periods of economic recession, the drop of market demand causes them to shrink and consolidate. After the economic backslide of the United States in 1987, the market saw a flurry of consolidation among investment banks. After the economic recovery in the early 1990s, investment banks were caught by another wave of consolidation, as shown in Table 8.2.

All of these mergers and acquisitions were aimed at raising the business scale of the parent company. It was during this process that investment banks gradually began transitioning from the partnership system to the modern company system, resulting in further concentration and specialization of investment banks, among other things.

Publicly Held Companies

Looking at the entire development history of the investment banking business, it becomes apparent that the transformation into publicly held companies is the most significant breakthrough. The modern company system endows a company with an independent personality. The establishment of the system was concentrated around and marketed by the corporate legal person's property rights. The legal person's property right is the corporate legal person's entitlement to all the assets of the company, including the investment and income from investment. The existence

TABLE 8.2 Big Events Involving M&As of U.S. Investment Banks in the 1980s and 1990s


M&A Event


Sears acquired Reynolds


GE acquired RCA


Primerica acquired Smith Barney and Harris Upham


Primerica acquired Shearson, formerly owned by American

Express, and formed Smith Barney Shearson


ING Group acquired Barings Bank


Morgan Stanley merged with Dean White

Source: Zhenming and Wei (2001).

of the legal person's property rights shows that the rights of a legal entity are no longer manifested in personal rights. The form of publicly held companies, in which the public holds the shares of the company, gives investment banks advantages over traditional family businesses, partnerships, and mixed companies in terms of fund-raising, financial risk control, and modernization of operation and management. These advantages are reflected in the following four aspects:

1. Distributed ownership: Ownership is divided into smaller units (shares) for sale and transfer.

2. Easy transfer of ownership: Ownership is easily transferred through stock trading.

3. Limited financial risks: Shareholder loss of assets extends only to their investment in the company, and their personal assets will not be used to pay off debts owed by the company.

4. Greater fund-raising capability: Publicly held companies can effectively raise large amounts of funds through the capital market.

For that reason, when the New York Stock Exchange loosened its restrictions of trading seat memberships and allowed for the formation of limited liability companies by shares, investment banks all made the transition and sought to go public, as shown in Table 8.3.

Table 8.3 also shows that in this stage, most investment banks went public through buying a shell. For example, Lehman Brothers went public

TABLE 8.3 Big Events Involving United States Investment Banks Going Public from the 1970s to the 1990s

Big Events Involving United States Investment Banks Going Public from the 1970s to the 1990s


after being acquired by the public company Sheaxson. Kidder Peabody also went public after being acquired by GE Financial. This goes along with the features noted previously, where a large number of mixed companies formed amidst a tidal wave of mergers and acquisitions among investment companies. By the early twenty-first century, overseas investment banks had gone through the extensive M&A phase and completed the transition into publicly held companies. Publically held companies are still one of the major organizational forms of overseas investment banks.

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