The Modern Industrial Revolution
This chapter argues that the most important factors influencing the development of investment banks in the second half of the 20th century were technological. The emergence first of large scale batch computers and later of high-powered desktop machines resulted in the computerization of many aspects of investment banking. At the same time, new developments in financial economics resulted in the codification of many activities that formerly had relied upon tacit skill. These businesses, which previously relied upon unquantifiable human capital, were transformed in this period. This trend is related to the rise of institutional investment, and it is argued that it manifested itself in the development of formal risk management systems. Traditional relational investment banking skills found new applications. The chapter traces the emergence of the modern M&A advisory business, and argues that the junk bond market gave investment bankers an opportunity to return to an activist investor role.
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