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Aspects of Corporate Finance: Inter-firm Lending

 | 
Michel Lescure
, 
Michael Moss

Organizing credit. Patterns of inter‑industrial finance in the interwar period in Germany (1920‑1940)

Boris Gehlen et Christian Marx

Texte intégral

Introduction

  • 1  Michel Lescure, « Le pouvoir de la dette : Le crédit inter-entreprises, instrument de financement (...)
  • 2Dieter Ziegler, „ Das deutsche Modell bankorientierter Finanzsysteme “, in Paul Windolf (ed), Fina (...)

1Unlike other industrialized countries – such as the United Kingdom or the United States – Germany developed a bank-oriented financial system in the 19th century. This characteristic of German capitalism is central to an understanding of the relevance of inter-firm credits as these always varied between large and small companies, at different times and between different countries.1 While British industrialization was marked by a relatively small capital-intensive sector (the textile industry), the later German industrialization in the age of railway construction was much more capital-intensive. It was in this context that the prototype of the universal bank emerged in Germany. Once national financial systems had been established at the end of the 19th century, a change was hardly conceivable.2

  • 3Jeffrey Fear and Christopher Kobrak, “Banks on Board: German and American Corporate Governance, 18 (...)
  • 4Martin Fiedler, « Zur Rolle des Vertrauens in der “Deutschland AG:” Verflechtungen zwischen Finanz (...)
  • 5Gerald D. Feldman, “Banks, Bankenmacht, and Financial Institutions from 1900 to 1933”, in Paul Win (...)
  • 6Volker Wellhöner, Großbanken und Großindustrie im Kaiserreich, Göttingen, Wandenhoed & Ruprecht, 1 (...)

2In contrast to the market-oriented system of Anglo-Saxon countries, where money and capital markets were the exclusive domain of highly specialized financial institutions (intermediaries), money and capital markets in continental Europe were weaker in the 19th century. When private banks realized that their resources for industrial financing were no longer sufficient, stock credit banks were established from the 1850s onwards. At the beginning of the 1870s Deutsche Bank, Dresdner Bank and Commerzbank emerged in this context. Since the 1880s large German banks had been operating in direct competition to established private banks and had gradually pushed them out of financing large-scale industry.3 And they were more involved in the fate of their customers than United Kingdom joint stock banks. Stock exchanges evolved in the German Empire as well, but the issue of shares was not delegated to the market; rather, universal banks acted as stock traders. The potential for regulation in this system resided in the close monitoring of major credit customers. In these cases, banks could often delegate representatives to the supervisory board – supported by equity stakes and proxy voting rights. Consequently, the major Berlin banks held more than 1,000 seats on other supervisory boards before World War I,4 so industrial firms were blessed with bankers on their supervisory boards and had direct access to long-term capital, insuring relative stability and constant growth.5 Indeed, the thesis of banking hegemony has never found empirical confirmation.6

  • 7G. Hardach, “Banking…”, op. cit., pp. 274-276; G. Hardach, „ Markt…”, op. cit., pp. 923-925; Carl- (...)
  • 8Theo Balderston, “German Banking between the Wars: The Crisis of the Credit Banks”, Business Histo (...)
  • 9Gerald D. Feldman, “Banks and the Problem of Capital Shortage in Germany, 1918-1923”, in Harold Ja (...)

3There is a second point which has to be considered when analysing inter-firm credits in the interwar period: the shortage of capital in Germany as a result of World War I and inflation. In the opening balance (Goldmarkeröffnungsbilanz) in 1924, the share capital (Aktienkapital) of all German stock credit banks had shrunk to 30 per cent and the balance sheet totals (Bilanzsumme) to 21 per cent of the pre-war value.7 As a result concentration in the banking sector was inevitable.8 According to the opinion of many critics, the conversion of former small regional stock banks into branches of large stock banks diminished the supply of credits to small and medium-sized enterprises because the headquarters in Berlin concentrated their resources on large-scale industry as a few large credits were easier to control. They put their money where they thought it would be safe – in particular into old industries like textiles and government-guaranteed investments. Furthermore, large companies often had the possibility of raising capital from foreign capital markets. This applied to Krupp, Gutehoffnungshütte (GHH), Thyssen, Deutsch-Lux and, in particular, to Vereinigte Stahlwerke (VSt) during the Weimar Republic.9

  • 10G.D. Feldman, “Capital Shortage…, ” op. cit., pp. 51-53; Harold James, The German Slump. Politics (...)
  • 11T. Balderston, “German Banking…, ” op. cit., pp. 581-585; Karl Erich Born, Die deutsche Bankenkris (...)
  • 12T. Balderston, “German Banking…”, op. cit., pp. 599-604; G.D. Feldman, „ Bankenmacht… “, op. cit., (...)

4Harold James has pointed out that the role of banks in financing German industry had been in decline even before 1914 because of increasing industrial self-financing. Furthermore, James – as well as Gerald Feldman – assume that German banks reached the nadir of their influence on industry between 1914 and 1923.10 In fact, the problem of the German banking system of the 1920s was not a restraint in lending but that German banks were rather too involved in granting credits. They expected that the economically successful pre-war years would return and therefore paid out pre-war dividends, although profits were much lower. German banks were supposed to withdraw from industrial finance, but they did not. Instead short-term (foreign) credits were granted for long-term investments. Hence, they got into severe trouble when foreign investors withdrew capital from Germany at the beginning of the 1930s and banks collapsed in July 1931.11 However, the German system survived the global economic crisis and even the National Socialists were afraid to smash the power of large banks.12

  • 13  M. Lescure, « Pouvoir… », op. cit., pp. 7-12.

5These characteristics – the principle of universal banking, the weakening influence of banks on industry, the shortage of capital and priority given to granting credits to large companies – determined the financing of German industry in the interwar period. According to economic literature, inter-firm credits can be explained by the search for more profits or lower costs, they were used to regulate demand, to lower prices or to subsidise products.13 In the German case, the historical framework indicates that both the granting of credits and the relationship between industrial enterprises and banks were subject to specific political and economic constraints, which suggests an historical explanation is necessary as well as common economic theory. We will explore the characteristics which can explain the financing of industrial enterprises, and show that inter-firm credit was only one kind of inter-firm relationship. Which financial relationships did companies choose, and why did they lend money to other companies? How relevant was the control of markets and the coordination of upstream and downstream production? Is it possible to explain these developments by financial constraints, and what was the role of structural networks and personal friends (old boys’ network)? Our case studies (Rheinbraun, Thyssen-Bornemisza, GHH, IG Farben, and Siemens) represent a large part of the German economy in this period (the steel and coal industry, logistics, the chemical, and the electrical industry): These show that differences existed not only between industries but also between companies, even if some common trends can be identified.

Inter-industrial finance in the interwar period: Case studies

Siemens

  • 14  Wilfried Feldenkirchen, Siemens 1918-1945, München, 1995, pp. 68-81, 385-393; Wilfried Feldenkirch (...)
  • 15W. Feldenkirchen, Siemens…, op. cit., pp. 393-401; W. Feldenkirchen, „ Unternehmensfinanzierung… “ (...)

6Since 1903, Siemens had been divided into the field of low-voltage current technology (Siemens & Halske AG, S&H) and the high-voltage current division (Siemens-Schuckert-Werke GmbH, SSW). In the immediate post-war period, German electrical companies obtained financing from the German capital market, but in the 1920s they had to go to foreign capital markets as well.14 In 1928/29, Siemens experienced some liquidity problems as a result of rising sales volumes and an additional credit requirement from its most important customer – the Reichspost. S&H agreed with the Reichspost to increase credits because incoming orders had declined significantly. Siemens’ competitor AEG also offered pre-financing to public authorities. The Siemens credit to the Reichspost was a trade credit, but it was a special inter-firm credit, which can only be explained by the weakness of public finances during the Weimar Republic. However, these measures were quite unsuccessful in the context of the global economic crisis. In 1932/33 and 1933/34, the orders of the Reichspost to S&H were only 37 and 38% of the amount in 1928/29, only in 1934/35 did this value rise to 62%. As a result, Siemens’ capital requirements rose, but fixed-income bonds could hardly be placed on the American capital market. Thus, a new kind of debt security (participating debentures) was invented. They guaranteed a fixed-interest rate and an additional interest according to the dividend. While the German agreements were negotiated with Deutsche Bank und Disconto-Gesellschaft, the US bank Dillon Read took over the American bonds, which were mainly purchased by General Electric.15 This example shows that inter-firm credits, which arose out of the attempt to maintain customer loyalty and to secure demand, had effects on the whole company. And it illustrates how pre-financing placed companies under financial pressure. The attempt to keep demand buoyant led to a close relationship with the US competitor GE, even if it did not become a relationship of dependency.

Gutehoffnungshütte (GHH)

  • 16See for the finance of iron and steel companies in the German Empire: Wilfried Feldenkirchen, „ Ka (...)
  • 17Ralf Banken, „Die Gutehoffnungshütte. Vom Eisenwerk zum Konzern (1758-1920)”, in Johannes Bähr, Ra (...)

7The company was in possession of the Haniel family and one of the ten biggest iron and steel producers of German heavy industry in the first half of the 20th century.16 After World War I, it diversified into several fields of processing by vertical integration. In contrast to many other German iron and steel producers it did not become part of VSt, the world’s largest steel producer after US Steel in the 1930s.17 When analysing the case of GHH, three points need to be highlighted:

  • 18R. Banken, „ Gutehoffnungshütte…“, op. cit., p. 121; Fritz Büchner, 125 Jahre Geschichte der Guteh (...)
  • 19C. Marx, Leitung…, op. cit., pp. 86-87.
  • 20Johannes Bähr, „ GHH und M.A.N. in der Weimarer Republik, im Nationalsozialismus und in der Nachkr (...)

8  1. Change of long-term supply contracts: Since self-consumption was not accounted for by cartel quotas – such as under the Stahlwerksverband – GHH’s managing director Paul Reusch pursued an expansive strategy which exploited the weakness of manufacturing industry at the end of the First World War. This was the case when GHH took over Altenhundemer Walz-und Hammerwerk GmbH and when Osnabrücker Kupfer- und Drahtwerk AG (OKD) was acquired. OKD suffered from the shortage of both raw materials as well as capital and therefore concluded a contract in 1914, which ensured the supply of semi-finished products from GHH, while GHH safeguarded its sales.18 In 1920, GHH then finally acquired 55 per cent of OKD’s share capital. In many cases, these supply contracts resulted in a takeover and led to the creation of the GHH group in the 1920s.19 The financial weight of GHH became finally evident in the takeover of the traditional mechanical engineering company MAN in 1920/21.20

  • 21C. Marx, Leitung…, op. cit., pp. 143-147.

9  2. Parent company as lender of last resort: The difficulties of the German manufacturing industry became evident at Maschinenfabrik Esslingen as well. After GHH had acquired half of the share capital, it provided MFE with a credit (Anleihe) of twenty million marks in 1920. In return, the MFE executive board succeeded in amortizing all its bank debts and thus reduced its dependency on banks. In June 1922, Reusch granted a further financial injection (credit) of twenty million marks. It was his aim to keep the dependency on banks as low as possible.21 In the following years, he endeavoured to preserve the financial independence from the banks and directed that new investments were not only financed on credits. Thus, in this context, inter-firm credits became an instrument to avoid bank hegemony.

  • 22C. Marx, Leitung…, op. cit., pp. 303-305; H. Wixforth, Schwerindustrie…, op. cit., pp. 164-170.

10After the end of inflation, the GHH Group suffered liquidity problems as well: like other German companies, GHH therefore contacted foreign investors. In 1925, GHH and the US banks W.A. Harriman & Co. and Lee, Higginson & Co. signed a ten-million-dollar bond (Anleihe). On the one hand, this reflected conditions on the German and American capital markets, and on the other, a consequence of the financial problems of the subsidiaries and of GHH’s strategy in the mid-1920s of covering short-term debts as quickly as possible. Inter-firm credits resulted not least from the fact that only large, powerful companies like GHH had access to foreign capital markets.22

  • 23C. Marx, Leitung…, op. cit., pp. 256-257.

11In order to analyse intra-group financing in more detail we can use OKD as an example once more. When the austerity measures implemented at OKD after 1924 did not show results, Reusch had to initiate further steps to restore the subsidiary. The OKD board was hardly able to act because of interest charges and short-term liabilities, as well as the loss of half of its share capital by 1926. In 1927, it required funds of about twelve million Reichsmark (RM). At that time, GHH had taken over 5.4 million RM of OKD’s liabilities and granted a respite for a trade debt of about five million RM. In the end, OKD’s share capital was pooled, and the subsidiary received a mortgage-backed US bond of one million US dollars. The financial assistance of GHH was essential for the survival of the company because the negotiation of the US bond would not have been possible without its support.23

  • 24C. Marx, Leitung…, op. cit., pp. 276-291.

12During the Great Depression, the financial power relations between the parent company and the subsidiaries became apparent once more. In the subsidiaries of GHH – MAN, Deutsche Werft, Schwäbische Hüttenwerke, and Zahnräderfabrik Augsburg (ZFA) – the crisis threatened the existence of all the companies. In the case of ZFA, the share capital was put together in a ratio of 2:1 in 1934, the credits of MAN and GHH to ZFA of more than 700,000 RM were converted into shares, and the bank debts were repaid by an equity stake. Thus, inter-firm credits and the subsequent settlement of share capital became two significant characteristics of the recapitalization of the GHH subsidiaries during the Great Depression.24

  • 25C. Marx, Leitung…, op. cit., pp. 307-308.

13  3. Participation in a bank: Although Reusch kept his dependence on banks as low as possible, GHH maintained intensive contacts with Bayerische Vereinsbank. Fritz Neumeyer AG, a subsidiary of GHH, acquired one third of the bank’s share capital in the mid-1920s. Reusch was willing to get Bayerische Vereinsbank more involved in corporate finance, but he opposed any demands to transfer all business to the bank because he did not want to cut the existing contacts with other banks or to establish Bayerische Vereinsbank as a kind of main bank (Hausbank).25

  • 26C. Marx, Leitung…, op. cit., pp. 405-409; Horst Möller, „ Die Bayerische Vereinsbank zwischen Resi (...)

14With the dissolution of Fritz Neumeyer AG in 1936, GHH became directly involved in the bank. When Reusch refused to remove Jewish members from the bank’s supervisory board and executive board, the Nazis were displeased and demanded the sale of shares held by GHH. Thereupon Reusch advised the southern German subsidiaries to withdraw their business from the bank.26 Despite the capital of the Haniel family, GHH needed large joint-stock banks for corporate finance – and because of this reciprocal relationship Reusch was appointed to the supervisory board of Deutsche Bank (1922-1931). The withdrawal of GHH from Bayerische Vereinsbank can only be explained politically. The reason for the participation of GHH in the bank was the desire to establish a facility for financing the southern German works of the GHH group. In sum, many industrial companies sought to create new financial instruments to expand their financial options in face of the economic turbulence in the interwar period.

Rheinbraun

15The Rheinische Aktiengesellschaft für Braunkohlenbergbau und Brikettfabrikation (Rheinbraun) is an exceptional case in German business history of the interwar period. Engaged in brown coal mining and electricity supply it weathered the several economic crises without any financial problems. Moreover, it generated stable profits which caused the ‘luxury problem’ of high liquidity. This was to some extent used to grant inter-firm credits. From a technical point of view, it acted like a bank as Rheinbraun set up credit contracts at current interest rates. However, these credits were not simple credit transactions but had a strategic impact. After 1924, Rheinbraun gradually bought shares of the Harpener Bergbau AG, a hard coal mining company, and became an important shareholder. Moreover, Paul Silverberg, founder and CEO of Rheinbraun, was delegated onto Harpen’s supervisory board. In this role, he put into effect Harpen’s rationalization and opted for a threefold financing strategy:

  1. capital increase,

  2. ‘regular’ obligation,

  3. inter-firm credit.

  • 27Boris Gehlen, Paul Silverberg (1876-1959). Ein Unternehmer, Stuttgart, Franz Steiner Verlag, 2007, (...)

16Rheinbraun purchased a significant number of the new shares and finally, in 1932, became the majority shareholder of Harpen. One year before, Rheinbraun had granted a ten million RM credit to Harpen in order to ensure that its rationalization and reorganization could be finished in time. An inter-firm credit proved to be the quickest and easiest solution to overcome liquidity shortages. Although Harpen was not yet a (fully) controlled company, it was already part of the ‘vision’ of an integrated power concern. The 1931 credit proved to be the cross-firm financing of strategic investments – and fits into the pattern described for GHH.27

  • 28B. Gehlen, Silverberg…, op. cit., pp. 179-180.

17Furthermore, in 1924, Rheinbraun rescued the Bedburger Wollindustrie AG with a $ 50,000 loan. The medium-sized textile company was confronted with severe financial problems. Usually such firms were not credit-worthy and had difficulties in accessing both capital and credit markets. This inter-firm credit can only be explained in terms of the personal factor. Silverberg, the CEO of Rheinbraun, was also head of Bedburger Wolle’s supervisory board. Moreover, the textile company had been set up by his father. Although Paul Silverberg neither held significant shares in the company nor was he an expert in textile production, the family link had been an incentive for him to control the firm. Silverberg was convinced that Bedburger Wolle could weather its crisis and was therefore willing to help with a credit from Rheinbraun. When Bedburger Wolle’s revenues declined, the company still serviced the loan which, however, aggravated its liquidity problems. But this was not in the interest of the creditor who had explicitly granted the loan to restructure the company. In the end, Silverberg totally disagreed with the firm’s management, resigned from the supervisory board and cut off his financial aid. As a result, Bedburger Wolle was taken over by a regional competitor in 1926. The crucial point about this inter-firm credit is that there was no strategic dimension between creditor and debtor but only matters of personal relations and personal interest.28

  • 29B. Gehlen, Silverberg…, op. cit., pp. 333-334.

18Just how confusing German credit and capital markets during the 1920s and 1930s were, is perhaps best illustrated by the fact that even banks obtained (de facto) loans from industrial companies. Rheinbraun, for example, helped Deutsche Bank – Silverberg was a member of the bank’s supervisory boards for a long time and a renowned advisor on banking issues – to overcome financial problems in 1932. Rheinbraun took over two million RM nominal shares in the bank at 115% provided that Deutsche Bank would reacquire one million RM shares if it could commercialize the shares in a different way. While one million RM shares were permanently added to Rheinbraun’s portfolio, the other million was de facto an inter-firm credit. In a similar manner, Rheinbraun was engaged in a bail-out syndicate for the Darmstädter and Nationalbank – the bank which had triggered the German banking crisis.29

19The latter example indicates that Rheinbraun, directed by Silverberg, occasionally acted as lenders of last resort. Moreover, in the late 1920s and early 1930s prices in rudimentary credit markets had lost their information function. Agents like Silverberg had to identify credit sources and use their personal networks to elicit the best credit options. Credit was no longer a question of supply and demand but of contacts. As a working credit market did not really exist, individual figures with strong contacts – such as Silverberg – had a “door-opening” function.

Thyssen

20While Rheinbraun was strictly focussed on the German market, the Thyssen group became a transnational organization after 1918. There was a threefold motivation to transfer business to the Netherlands:

  1. to establish trade relations,

  2. to hide assets as a reaction to revolutionary tendencies in the Reich,

  3. to improve access to credit and capital markets.

  • 30Christoph Kreutzmüller, Händler und Handlungsgehilfen. Der Finanzplatz Amsterdam und die deutschen (...)

21The upswing of Amsterdam (and Rotterdam) as a financial centre after 1918 was directly affected by the problems in the German market. Many larger industrial companies and all major credit banks either established subsidiaries or cooperated with Dutch banks.30

  • 31Manfred Rasch, „ August Thyssen und sein Sohn Heinrich Thyssen-Bornemisza. Die zweite und dritte U (...)

22The ‘old’ united Thyssen concern took over the Bank voor Handel en Scheepvaart (BHS) after World War I. Even after the death of August Thyssen and the integration of Thyssen’s steelworks into Vereinigte Stahlwerke (VSt), the bank remained a relevant credit supplier for Europe’s largest steel producer. However, more relevant for our topic are those companies that had not been integrated into VSt: The German and Dutch trading companies, the shipyards, the cement works, the water and gas suppliers, and the banks were separated from steel and mining and henceforth organized under the management of Heinrich Thyssen-Bornemisza.31

23The foundation of VSt in 1926 was not only relevant for the Thyssen steel works, owned by Fritz Thyssen, but for Heinrich Thyssen-Bornemisza’s firms as well. Before 1926 both parts of the old, vertically integrated Thyssen concern had had close business relations with each other and these were now challenged. In particular, on the one hand, the gasworks and waterworks (Thyssensche Gas - und Wasserwerke; Thyssengas) supplied VSt with water and energy, but on the other, they depended on the supply of coke oven gas from the steel works.

  • 32Christian Böse and Michael Farrenkopf, Zeche am Strom. Die Geschichte des Bergwerks Walsum. 2.

24VSt settled the payments with Thyssengas by accepting a surcharge being transferred to an account of the BHS, which then re-transferred the money back to Germany – as a loan for Thyssengas in order to build up the Walsum coal mine, a Thyssengas subsidiary. In consequence, an inter-firm credit for long-term investment was thus organized via a detour through the Netherlands – internally this transfer system was called the ‘Holland-Abgabe’. But at least with regard to corporate income tax this inter-firm credit appears as an intra-firm credit: By ‘relinquishing’ the surplus payments, Thyssengas reduced its profits and therefore paid lower taxes.32

IG Farben

  • 33Gottfried Plumpe, Die I.G. Farbenindustrie AG. Wirtschaft, Technik und Politik 1904-1945, Berlin, (...)
  • 34G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 131-134.

25Increasing industrial concentration, as in the case of the electrical or heavy industry, was particularly typical of the German chemical industries. In 1925, IG Farben was founded, consisting of about half the total shareholding of all German chemical companies at that time.33 In addition to the loss of foreign markets and increasing international competition, financial aspects had become decisive for its foundation. While the three large companies (BASF, Bayer, Hoechst) had approximately the same turnover before World War I, BASF emerged as the largest company due to ammonia synthesis and the fertilizer business after the war. Since the funds necessary to complete BASF’s facilities for ammonia synthesis in Oppau and Merseburg (400 million Marks) could not be put up on the German capital market in 1919 and as BASF ruled out state shareholding, only an internal solution remained. This financial burden was an existential risk for the whole corporation because the other companies were liable as joint guarantors for the obligations of BASF. In this situation, the IG companies agreed to increase their capital and provided BASF with the necessary funds through credits. One year later, Ammoniakwerke Merseburg Oppau GmbH was set up, the capital of which was taken over by the single IG companies, so that inter-firm credits were transformed into shareholding once more.34

  • 35H. James, “Banks…”, op. cit., p. 268; G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 164-165.
  • 36Hans Pohl, “Forms and Phases of Industry Finance up to the Second World War”, in Wolfram Engels an (...)
  • 37Mario König, Interhandel. Die schweizerische Holding der IG Farben und ihre Metamorphosen - eine A (...)
  • 38G. Plumpe, I.G. Farbenindustrie…, op. cit., p. 165.

26In addition to inter-firm credits, IG Farben also participated in a bank (Deutsche Länderbank AG) to limit the power of banks.35 After trade with German colonies ended as a result of the war, Deutsche Kolonialbank AG extended its business to industrial financing in 1919 and changed its name to Deutsche Länderbank AG in 1922. In 1923/24, BASF took over 80% of the share capital, and the majority (64%) of these shares was transferred to a Swiss bank.36 The advantage to IG Farben was that the bank could directly refinance the company at the Reichsbank. Furthermore, the excellent relations of IG Farben’s chairman Hermann Schmitz with Switzerland contributed to the fact that it received discrete loans from Swiss banks during the Second World War.37 However, Länderbank did not manage all financial transactions of IG Farben, but it was Deutsche Bank und Disconto-Gesellschaft which remained the most important partner (Hausbank) due to its size and connections.38

  • 39K. Lehmann, Wandlungen…, op. cit., pp. 63-70; G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 479- (...)
  • 40G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 670-674, 678-680.
  • 41K. Lehmann, Wandlungen…, op. cit., pp. 161-167.

27In terms of financing, IG Farben primarily focused on increases of its share capital. However, in 1928, a 250 million RM bond (Teilschuldverschreibung) – a financing instrument new to the German capital market – constituted an important step in raising funds. Inter-firm credits were hardly suitable for obtaining such an amount of capital. Although the three major German banks (Deutsche Bank, Dresdner Bank, Commerz- und Privatbank) held 45-55% of the voting shares at general meetings in the early 1930s, they did not control the company’s policy, even though they represented the typical bank-industry relations of the German model. On the contrary, IG Farben even succeeded in reducing its bank debts and its dependency on banks during the crisis.39 It was only in 1937/38 that investments had to be reduced as liquidity decreased. Funding through the issue of share capital over the capital market was nearly impossible after 1933. As a consequence, the liabilities of the corporation, that means credits from suppliers and affiliates, increased in the 1930s.40 This example shows in particular how a company could change its financing depending on the constitution of the capital market. While the allocation of an inter-firm credit to BASF was the only possible solution at the beginning of the 1920s, the short boom in the mid-1920s opened room for a bond. When the scope of the capital market narrowed as a result of controls by the Nazi state, the importance of internal finance grew again.41

Conclusion

  • 42Michell A. Petersen and Raghuram G. Rajan, “Trade Credit: Theories and Evidence”, Review of Financ (...)
  • 43Mike Burkart and Tore Ellingsen, “In-Kind Finance: A Theory of Trade Credit”, American Economic Re (...)

28In the case of GHH, inter-firm credits and supply contracts became especially relevant during the foundation phase of the corporation after World War I and during the Great Depression. As Mitchell Petersen and Raghuram Rajan have explained, suppliers gave credits to constrained firms to get more information about their buyers and to have an implicit equity stake in the firms.42 This applies to the GHH case exactly. Reusch granted loans to the constrained manufacturing industry in order to tie the companies more closely to the group. In a second step, he acquired a part of the share capital, or he converted loans to equity shares in the course of restructuring. The possibility of granting loans to subsidiaries or buyers depended on the access of the supplier to finance. Here, GHH was in a much more favourable position than its small subsidiaries. GHH had excellent connections to German banks and it had the possibility to raise capital on the US capital market. This relationship with financial institutions increased credit availability. Size was an indicator of creditworthiness as larger firms had easier access to external finance. Furthermore, trade credits between industrial companies increased the amount that banks were willing to lend; in this regard, bank credits and trade credits were complements.43 In the long-term, Reusch expected that these companies would become profitable again. Exactly the same pattern can be observed for the loans of Rheinbraun to Harpen and to Bedburger Wolle. So, the credit quality of customers played a decisive role as well.

29In the case of Siemens, the reasons for trade credit were somewhat different. Here the dependency ratio was almost reversed. Siemens did not grant credit to the Reichspost because it wanted to monitor its customer, but the Reichspost was in fact an important customer which Siemens did not want to lose. This loan was a special form of inter-firm credit since the Reichspost was a state-owned enterprise.

30To sum up, we would like to highlight three points: Firstly, various industrial companies with financial problems negotiated long-term supply contracts, which became equity investments later on – sometimes by a devious route as in the case of the “Holland-Abgabe”. Secondly, parent companies often secured credits to subsidiaries in order to reduce the dependency on banks. This is true for GHH, but also for Rheinbraun, which granted credits to “friendly” companies. Thirdly, several German companies participated in banks: GHH was involved in Bayerische Vereinsbank, IG Farben in Deutsche Länderbank, and Thyssen-Bornemisza in Bank voor Handel en Scheepvaart and August Thyssen-Bank. None of these banks were the “main bank” (Hausbank) of the industrial corporation but these institutions became major regional or specialized banks for the industrial groups and demonstrated the latter’s will to reduce the dependency on banks.

31In Germany, cartelization and the creation of industrial groups (‘Konzern’) were two key answers to the question of how to control markets in the 1920s. In this manner, “creative” corporate finance became more important, even though German industrial companies had close ties to banks. In this regard, inter-firm credits and trade credits could be interpreted as one element of cooperative capitalism which helped the German economy to mitigate against the dysfunctionalities of the German capital market in the interwar period.

Notes

1  Michel Lescure, « Le pouvoir de la dette : Le crédit inter-entreprises, instrument de financement ou mode de coordination ? », Entreprises et Histoire, 77, 2014, pp. 6-21.

2Dieter Ziegler, „ Das deutsche Modell bankorientierter Finanzsysteme “, in Paul Windolf (ed), Finanzmarkt-Kapitalismus. Analysen zum Wandel von Produktionsregimen, Wiesbaden, Springer-Verlag, 2005, pp. 276-293.

3Jeffrey Fear and Christopher Kobrak, “Banks on Board: German and American Corporate Governance, 1870-1914”, Business History Review, 84 (4), 2010, pp. 703-736, pp. 708-709; Caroline Fohlin, “Universal Banking in pre-World War I Germany. Model or Myth?”, Explorations in Economic History, 36, 1999, pp. 305-343; Gerd Hardach, “Banking in Germany, 1918-1939”, in Charles H. Feinstein (ed), Banking, Currency and Finance in Europe between the Wars, Oxford, Clarendon Press, 1995, pp. 269-295, pp. 270-274; Gerd Hardach, „ Zwischen Markt und Macht: Die deutsche Banken 1908-1934 “ in Wilfried Feldenkirchen, Frauke Schönert-Röhlk and Günther Schulz (eds), Wirtschaft, Gesellschaft, Unternehmen. Festschrift für Hans Pohl zum 60. Geburtstag. 2. Teilband, Stuttgart, 1995, pp. 914-938, pp. 914-923; Richard Tilly, “Universal Banking in Historical Perspective”, Journal of Institutional and Theoretical Economics, 1998, pp. 7-32; Harald Wixforth, „ Industriekredit und Kapitalmarktfinanzierung zwischen Reichsgründung und Weltwirtschaftskrise “, in Thorsten Beckers (ed), Bankkredit oder Kapitalmarkt: Alternativen der Industriefinanzierung in Deutschland, Stuttgart, Frantz Steine Verlag Wiesbaden GmbH, 2002, pp. 15-38, p. 18-28; D. Ziegler, „ Modell…“, op. cit., pp. 277-287.

4Martin Fiedler, « Zur Rolle des Vertrauens in der “Deutschland AG:” Verflechtungen zwischen Finanz und Nichtfinanzunternehmen im 20. Jahrhundert », Jahrbuch für Wirtschaftsgeschichte, 1, 2005, pp. 93-106; Caroline Fohlin, “The Rise of Interlocking Directorates in Imperial Germany”, Economic History Review, 52 (2), 1999, pp. 307-333; Dieter Ziegler, „ Die Aufsichtsräte der deutschen Aktiengesellschaften in den zwanziger Jahren. Eine empirische Untersuchung zum Problem der “Bankenmacht” “, Zeitschrift für Unternehmensgeschichte, 43, 1998, pp. 194-215; D. Ziegler, „ Modell… “, op. cit., pp. 277-287.

5Gerald D. Feldman, “Banks, Bankenmacht, and Financial Institutions from 1900 to 1933”, in Paul Windolf (ed.), Finanzmarkt-Kapitalismus, op. cit., pp. 316-330, p. 323. The exchange of information was central to this relationship, in particular with regard to monitoring, coordination, control and commitment, cf. Marco Da Rin, “Understanding the Development of German Kreditbanken, 1850-1914: An Approach from the Economics of Information”, Financial History Review, 3, 1996, pp. 29-47, especially p. 38.

6Volker Wellhöner, Großbanken und Großindustrie im Kaiserreich, Göttingen, Wandenhoed & Ruprecht, 1989; Harald Wixforth, Banken und Schwerindustrie in der Weimarer Republik, Köln / Weimar / Wien, Böhlau, 1995; Harald Wixforth and Dieter Ziegler, “‘Bankenmacht’. Universal Banking and German Industry in Historical Perspective”, in Youssef Cassis, Gerald D. Feldman and Ulf Olsson (eds), The Evolution of Financial Institutions and Markets in Twentieth-Century Europe, Aldershot, Scolar Pr, 1995, pp. 249-272.

7G. Hardach, “Banking…”, op. cit., pp. 274-276; G. Hardach, „ Markt…”, op. cit., pp. 923-925; Carl-Ludwig Holtfrerich, „ Auswirkungen der Inflation auf die Struktur des deutschen Kreditgewerbes “, in Gerald D. Feldman (ed), Die Nachwirkungen der Inflation auf die deutsche Geschichte, München, Oldenbourg Wissenschafts Verlag, 1985, pp. 187-209; Harold James, “Banks and Bankers in the German Interwar Depression”, in Youssef Cassis (ed), Finance and Financiers in the European History, Cambridge, Cambridge University Press, 1992, pp. 263-281, pp. 267-268; D. Ziegler, „ Modell…“, op. cit., p. 287.

8Theo Balderston, “German Banking between the Wars: The Crisis of the Credit Banks”, Business History Review, 65, 1991, pp. 554-605, pp. 554-581; G. Hardach, “Banking…”, op. cit., pp. 278-280; G. Hardach, „ Markt… “, op. cit., pp. 926-927.

9Gerald D. Feldman, “Banks and the Problem of Capital Shortage in Germany, 1918-1923”, in Harold James, Håkan Lindgren and Alice Teichova (eds), The Role of Banks in the Interwar Economy, Cambridge, Cambridge University Press, 1991, pp. 49-79, pp. 53-54; Gerald D. Feldman, “Banks and Banking in Germany after the First World War: Strategies of Defence”, in Youssef Cassis (ed), Finance and Financiers in European History, op. cit., pp. 243-262; G.D. Feldman, “Bankenmacht…”, op. cit., pp. 324-325; H. James, “Banks…”, op. cit.; Alfred Reckendrees, Das “Stahltrust”- Projekt. Die Gründung der Vereinigte Stahlwerke AG und ihre Unternehmensentwicklung 1926-1933/34, München, C.H. Beck, 2000, pp. 139-141; H. Wixforth, „ Industriekredit… “, op. cit., pp. 32-33.

10G.D. Feldman, “Capital Shortage…, ” op. cit., pp. 51-53; Harold James, The German Slump. Politics and Economics, 1924-1936, Oxford, Clarendon Press, 1986.

11T. Balderston, “German Banking…, ” op. cit., pp. 581-585; Karl Erich Born, Die deutsche Bankenkrise 1931. Finanzen und Politik, München, Piper, 1967; G.D. Feldman, “ Capital Shortage… ”, op. cit., pp. 75-76; G. Hardach, “Banking…” , op. cit., pp. 283-287; G. Hardach, „ Markt… “, op. cit., pp. 928-933; Harold James, “The Causes of the German Banking Crisis of 1931”, Economic History Review, 37 (1), 1984, pp. 68-87; H. James, German Slump…, op. cit.; H. James, “Banks…”, op. cit., pp. 270-273; D. Ziegler, „ Modell… “, op. cit., pp. 287-288.

12T. Balderston, “German Banking…”, op. cit., pp. 599-604; G.D. Feldman, „ Bankenmacht… “, op. cit., pp. 326-327; G. Hardach, “Banking…”, op. cit., pp. 287-291; G. Hardach, „ Markt… “, op. cit., pp. 934-936; Christopher Kopper, Zwischen Marktwirtschaft und Dirigismus. Bankenpolitik im “Dritten Reich” 1933-1939, Bonn, 1995, pp. 51-112, 199-208; D. Ziegler, „ Modell… “, op. cit., pp. 288-289.

13  M. Lescure, « Pouvoir… », op. cit., pp. 7-12.

14  Wilfried Feldenkirchen, Siemens 1918-1945, München, 1995, pp. 68-81, 385-393; Wilfried Feldenkirchen, „ Unternehmensfinanzierung in der deutschen Elektroindustrie der Zwischenkriegszeit“, in Dietmar Petzina (ed), Zur Geschichte der Unternehmensfinanzierung, Berlin, Duncker V. Humblot, 1990, pp. 35-68, pp. 35-39; Karin Lehmann, Wandlungen der Industriefinanzierung mit Anleihen in Deutschland, 1923/24-1938/39, Stuttgart, In Konmission bei F. Steiner, 1996, pp. 82-92.

15W. Feldenkirchen, Siemens…, op. cit., pp. 393-401; W. Feldenkirchen, „ Unternehmensfinanzierung… “, op. cit., pp. 45-48; K. Lehmann, Wandlungen…, op. cit., pp. 92-99.

16See for the finance of iron and steel companies in the German Empire: Wilfried Feldenkirchen, „ Kapitalbeschaffung in der Eisen- und Stahlindustrie des Ruhrgebiets 1879-1914 “, Zeitschrift für Unternehmensgeschichte, 24 (1), 1979, pp. 39-81; Wilfried Feldenkirchen, Die Eisen- und Stahlindustrie des Ruhrgebiets, 1879-1914. Wachstum, Finanzierung und Struktur ihrer Großunternehmen, Wiesbaden, Steiner, 1982.

17Ralf Banken, „Die Gutehoffnungshütte. Vom Eisenwerk zum Konzern (1758-1920)”, in Johannes Bähr, Ralf Banken and Thomas Flemming (eds), Die MAN. Eine deutsche Industriegeschichte, München, C.H. Beck, 2008, pp. 15-129, 487-520; Christian Marx, Paul Reusch und die Gutehoffnungshütte. Leitung eines deutschen Großunternehmens, Göttingen, Wallstein Verlog, 2013.

18R. Banken, „ Gutehoffnungshütte…“, op. cit., p. 121; Fritz Büchner, 125 Jahre Geschichte der Gutehoffnungshütte, Oberhausen, Druck A. agel Aktiengesellschaft, 1935, p. 35; Harold James, Familienunternehmen in Europa. Haniel, Wendel und Falck, München, Beck, 2005, p. 202; C. Marx, Leitung…, op. cit., pp. 82-86; Erich Maschke, Es entsteht ein Konzern. Paul Reusch und die GHH, Tübingen, Wunderlich, 1969, pp. 86-98.

19C. Marx, Leitung…, op. cit., pp. 86-87.

20Johannes Bähr, „ GHH und M.A.N. in der Weimarer Republik, im Nationalsozialismus und in der Nachkriegszeit (1920-1960) “, in Johannes Bähr, Ralf Banken and Thomas Flemming (eds), Die MAN, op. cit., pp. 231-371, 538-569, pp. 240-246; Gerald D. Feldman, Hugo Stinnes, Biographie eines Industriellen 1870-1924, München, C.H. Beck, 1998, p. 661; G.D. Feldman, “Banking…”, op. cit., p. 251; H. James, Familienunternehmen…, op. cit., p. 207; C. Marx, Leitung…, op. cit., pp. 148-163; E. Maschke, Konzern…, op. cit., pp. 153-160.

21C. Marx, Leitung…, op. cit., pp. 143-147.

22C. Marx, Leitung…, op. cit., pp. 303-305; H. Wixforth, Schwerindustrie…, op. cit., pp. 164-170.

23C. Marx, Leitung…, op. cit., pp. 256-257.

24C. Marx, Leitung…, op. cit., pp. 276-291.

25C. Marx, Leitung…, op. cit., pp. 307-308.

26C. Marx, Leitung…, op. cit., pp. 405-409; Horst Möller, „ Die Bayerische Vereinsbank zwischen Resistenz und Gleichschaltung 1933-1945 “, Vierteljahrshefte für Zeitgeschichte, 63 (1), 2015, pp. 1-32.

27Boris Gehlen, Paul Silverberg (1876-1959). Ein Unternehmer, Stuttgart, Franz Steiner Verlag, 2007, pp. 297-304.

28B. Gehlen, Silverberg…, op. cit., pp. 179-180.

29B. Gehlen, Silverberg…, op. cit., pp. 333-334.

30Christoph Kreutzmüller, Händler und Handlungsgehilfen. Der Finanzplatz Amsterdam und die deutschen Großbanken (1918-1945), Stuttgart, Franz Steiner Verlag, 2005. Moreover, the Thyssen group took over the former von der Heydt-Bank in 1929 but due to foreign exchange control and further state intervention it did not, as intended, become a credit intermediary for the Thyssen-Bornemisza but acted more or less as private bank and asset manager. Harald Wixforth, „ Eine Konzernbank entsteht: Gründung und Anfangsjahre der August Thyssen-Bank (1927–1932) “, Vierteljahrschrift für Sozial-und Wirtschaftsgeschichte, 99, 2012, pp. 300-322.

31Manfred Rasch, „ August Thyssen und sein Sohn Heinrich Thyssen-Bornemisza. Die zweite und dritte Unternehmergeneration Thyssen “, in Manfred Rasch (ed), August Thyssen und Heinrich Thyssen-Bornemisza. Briefe einer Industriellenfamilie 1919-1926. Bearbeitet und annotiert von Carl-Friedrich Baumann und Vera Schmidt, Essen, Klartext Verlag, 2010, pp. 9-78; Harald Wixforth, Schoeningh Ferdinand GmbH, Heinrich Thyssen-Bornemiszas, von 1926 bis 1932, Paderborn, 2019, Von Stahlkonzean zum Firmenverbund Die Unternehmen.

32Christian Böse and Michael Farrenkopf, Zeche am Strom. Die Geschichte des Bergwerks Walsum. 2.

33Gottfried Plumpe, Die I.G. Farbenindustrie AG. Wirtschaft, Technik und Politik 1904-1945, Berlin, Duncker and Humblot, 1990, p. 164.

34G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 131-134.

35H. James, “Banks…”, op. cit., p. 268; G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 164-165.

36Hans Pohl, “Forms and Phases of Industry Finance up to the Second World War”, in Wolfram Engels and Hans Pohl (eds), German Yearbook on Business History 1984, Berlin, 1984, pp. 75-94, p. 87.

37Mario König, Interhandel. Die schweizerische Holding der IG Farben und ihre Metamorphosen - eine Affäre um Eigentum und Interessen (1910-1999), Zürich, Chronos, 2001; Volker Koop, Das schmutzige Vermögen. Das Dritte Reich, die I.G. Farben und die Schweiz, München, Siedler, 2005, pp. 57-58.

38G. Plumpe, I.G. Farbenindustrie…, op. cit., p. 165.

39K. Lehmann, Wandlungen…, op. cit., pp. 63-70; G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 479-490, 676-677.

40G. Plumpe, I.G. Farbenindustrie…, op. cit., pp. 670-674, 678-680.

41K. Lehmann, Wandlungen…, op. cit., pp. 161-167.

42Michell A. Petersen and Raghuram G. Rajan, “Trade Credit: Theories and Evidence”, Review of Financial Studies, 10 (3), 1997, pp. 661-691.

43Mike Burkart and Tore Ellingsen, “In-Kind Finance: A Theory of Trade Credit”, American Economic Review, 94 (3), 2004, pp. 569-590.

Auteurs

Boris Gehlen is Associate Professor (Privatdozent) for Economic and Social History at Bonn University and Researcher at the Institute for Contemporary History in Munich. He studied Economic and Social History at Bonn University, Ph.D. 2005, Habilitation 2014, stages at the Universities of Cologne, Vienna, and Bochum. Main fields of research: Business History, History of Regulation, Financial History, History of Corporate Governance. Main publications: Paul Silverberg. Ein Unternehmer, Stuttgart, Steiner 2007, “Corporate Law and Corporate Control in West Germany after 1945”, in Business History, http://dx.doi.org/10.1080/00076791.2017.1319939; „ Zielkonflikte bei Aktienerstemissionen? Regulierung und Zulassungspraxis am Beispiel der Berliner Börse (1870 bis 1932) “, in Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, 2018/1, pp. 39-76.

Christian Marx studied Mathematics, History, and Political Science and is Researcher at the Institute for Contemporary History in Munich. He worked at the research cluster “Societal Dependencies and Social Networks”, Universities of Trier and Mainz, Germany (2005-2011) and in a project on “Corporate networks in Germany, France and the United States, 1896-1938” (2007/08). In 2011, he finished his PhD with a study of the corporate governance of the German iron and steel company “Gutehoffnungshütte”, From 2011 to 2018, he was working for his habilitation on “European multinational companies, 1965-2000” at the Department of Modern and Contemporary History, University of Trier. Main fields of research: Contemporary European History, Business History, Economic History, Corporate Networks. Main publications: Paul Reusch und die Gutehoffnungshütte. Leitung eines deutschen Großunternehmens, Göttingen, Wallstein, 2013; “Between national governance and the internationalization of business. The case of four major West German producers of chemicals, pharmaceuticals and fibres, 1945-2000”, in Business History 2017, http://dx.doi.org/10.1080/00076791.2017.1284201; “A structural crisis cartel as solution to a sectoral depression? The Western European fibre industry in the 1970s and 1980s”, in Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook 58 (1), 2017, pp. 163-197.

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