ZEW Experts Survey: What Does Germany's New Market Need in Order to Get Back on its Feet?

The crisis of confidence in the New Market is primarily a result of inadequate financial management of businesses, overly ambitious business strategies and euphoria in the stock market, leading to massive oversubscription after the New Market reached its peak in the late nineties.

The majority of the 330 financial analysts and institutional investors in Germany, which the Mannheim Centre for European Economic Research (ZEW) recently surveyed as part of its monthly ZEW Financial Market Survey, were of this opinion. As part of the market survey, the surveyed experts were asked what they consider to be the cause of the confidence crisis: the founder of the company, the company itself or other factors. Since its peak in the beginning of the year 2000, NEMAX 50 has suffered a fall in market value of almost 90 per cent.

Over 80 per cent of the experts surveyed criticised the founders’ lack of market knowledge, inadequate financial management, premature selling of shares, as well as incorrect choices when selecting management employees. Experts particularly criticised the financial management of businesses in the New Market, with over 95 per cent of the financial experts considering this to be one of the reasons for the confidence crisis.

When asked about businesses as a whole, the experts were equally unanimous. Over 95 per cent of the participants share the opinion that the crisis is due to overly ambitious business strategies. Furthermore, 90 per cent of the participants consider the information policy in businesses to be inadequate and agree that a company's decision to go public on the stock exchange often comes at too early a stage. Whilst approximately 56 per cent of the surveyed financial experts agree that the confidence crisis in the New Market was due to insufficient assets, less than 40 per cent consider shortage of labour to be the reason for the crisis.

When asked about the influence that third parties had on the confidence crisis, more than 95 per cent of the participants stated that the massive oversubscription in the stock market led to the crisis. Approximately 85 per cent of the participants believe that the crisis resulted from deficient control mechanisms. Moreover, almost 80 per cent of the participants believe that the stock market requirements are inadequate, and a total of 60 per cent of the experts claimed that the current accounting regulations are insufficient. In order to re-build confidence in the German stock market, experts believe that tightening stock market and accounting regulations is a crucial.

[For more information, access Lehmann, Hess and Lüders, Vertrauenskrise am Neuen Markt, ZEW Financial Market Report No. 9, September 2001, page 3 (in German)]

Contact

Erik Lüders, E-mail: lueders@zew.de