(Mirror. Mirror. Mirror.)

These two new data sets allow us to examine the reaction of investors to the [German Fascists’] “seizure of power.” If close ties with the new government—as perceived by German stock market investors in 1933—were valuable to the firms in question, their share prices should have outperformed the rest of the market. We thus try to offer a quantitative answer to the question, How much was it worth to have close, early connections with the [NSDAP]? The answer is—a great deal.

Affiliated firms outperformed the stock market by 5% to 8% and account for a large part of the market’s rise. Investors recognized value where they saw it and rewarded firms with preestablished ties handsomely. This demonstrates that the connections we document mattered—investors’ willingness to pay for connected firms was markedly higher by mid‐March 1933 than before the thirtieth of January.

Our results relate to an earlier literature that focused on the connections between big business and the NSDAP during the Great Depression. Following the conviction of influential industrialists such as Friedrich Karl Flick, Alfried Krupp, and I. G. Farben executives in the Nuremberg trials, much of the literature took it for granted that major German firms had financed the [NSDAP’s] rapid rise after 1930. Autobiographies of leading figures such as Fritz Thyssen’s I Paid Hitler (1941) reinforced this impression.²

From the late 1960s onward, this consensus was challenged by Henry A. Turner. His German Big Business and the Rise of Hitler argued that before 1933, contributions from large corporations were rare. Only a handful of prominent business leaders had made substantial donations. The party was largely self‐financing. Political contributions were a way to hedge bets, and many right‐wing parties received funding.³

There was no “smoking gun” linking big business with the rise of Hitler. Although some authors have questioned Turner’s reading of the evidence, the consensus now is that the links between big business and the [Fascists] were much more tenuous and ambiguous than previously assumed.⁴

[…]

Earlier examinations of the link between stock prices and the [Fascists’] rise to power focused on market averages. Immediately after the new government took office, stocks rallied. As the New York Times’s correspondent put it on January 31: “The Boerse recovered today from its weakness yesterday when it learned of Adolf Hitler’s appointment, an outright boom extending over the greater part of the stocks… The turnover was large, leading stocks advancing 3 to 5 percent.”⁹

Stock prices continued to rise after January 1933.¹⁰ Some observers argued that investor enthusiasm for [Fascist] economic policies and rearmament was responsible for this increase.

The consensus view has been that this evidence is not convincing, for two reasons. First, the rebound in stock prices began long before Hitler’s accession to office became a serious political possibility. Second, it is also virtually indistinguishable from the cyclical increase in broad market indices that started in most industrialized countries in the summer of 1932. Figure I plots stock indices in France, the United Kingdom, Germany, and the United States.

The German market fell by 40% between January 1930 and April 1932. By mid‐January 1933, it had risen by 43%. This was part of a general trend—the Standard and Poor’s 500 in the United States had gained 35% over the same period. Nor were the increases after the thirtieth of January 1933 unusually high. By June, the German index had risen by 12% since mid‐January. The S&P was up 63%, the U.K. FTSE 11%, and the French index 10%.

As Figure I shows, there is little to suggest that stock market investors as a whole cheered [Fascism’s] rise to power to a significant extent, at least during its initial phase. What has been neglected is the impact of Hitler’s accession to power on the cross section of stock returns.

[…]

We identify businessmen and firms as connected to the NSDAP if they meet either of two criteria. First, if business leaders or firms contributed financially to the party or to Hitler or Göring, they qualify as connected.¹⁴ Second, certain businessmen provided political support for the [Fascists] at crucial moments, serving on (or helping to finance) various groups that advised the party or Hitler on economic policy. We also count the latter as connected. Appendix I lists all relevant individuals and firms, along with notes on the main scholarly sources for each.¹⁵

Most of these connections are not controversial. Because some have been disputed, we explain our choices in detail. We also perform a number of sensitivity tests later to show that our key findings are robust to changes in the definition of what it takes to be connected.

The first group includes early contributors such as Thyssen and Kirdorf. Their support—financial and other—is not disputed.¹⁶ It also includes the financiers and industrialists who participated in a meeting on February 20, 1933, at Göring’s residence in Berlin. After giving a speech attacking Communism and declaring private enterprise to be incompatible with democracy, Hitler left the conclave.

Göring laid out plans for winning the upcoming national elections, observing that “the sacrifices asked for […] would be so much easier for industry to bear if it realized that the election of March 5th will surely be the last one for the next 10 years, probably even for the next 100 years.” Schacht then presided over the establishment of a campaign fund totaling three million Reichsmarks for the electoral campaign.¹⁷

In the second group are businessmen whose ties to the party also pre‐dated Feb. 20. It includes the signatories of a famous petition to President Hindenburg, urging him to appoint Hitler as Chancellor. The signatories were providing political support to [Fascism] at a critical juncture because the party’s vote had just declined.¹⁸ They qualify as connected according to our second criterion.¹⁹

We also include the members of the Keppler Kreis and the Arbeitsstelle Schacht in this group. The former was organized by Wilhelm Keppler, a former chemical company executive, with the explicit aim of creating stronger links between big business and the [NSDAP] and of influencing the latter’s economic policies. The Arbeitsstelle Schacht was organized by the former Reichsbank President, Hjalmar Schacht.

The businessmen who financed Schacht’s circle included some of the biggest names in German business, including Albert Vögler of Vereinigte Stahl, Krupp von Bohlen, Fritz Springorum, Emil Georg von Stauss (who first introduced Schacht to Göring), Rosterg of Winterhall, and Kurt von Schröder.²⁰ Because Turner raised questions about some of these figures, we again test the sensitivity of our results to alternative definitions.²¹

Traditional accounts of big business involvement with the [NSDAP] have focused on the relationship between managers (Vorstand) and party figures.²² We pursue a more comprehensive approach. The power of the supervisory board (Aufsichtsrat) in the organization of German industry is difficult to exaggerate. It appoints and fires executives, acting on behalf of the shareholder assembly (Passow 1906). Part of its remit is to check on the financial reporting of joint stock companies and to consult with managers before major decisions.

In contrast to Anglo‐Saxon boards, executives are ordinarily not members of the supervisory board. Far from being an ineffectual rubber‐stamping institution, supervisory boards offered central positions of power, and many of the leading businessmen in Germany did (and still do) accept multiple appointments. Universal banks exerted their influence habitually through seats on the board—Gerschenkron called the supervisory board in Germany the “most powerful organ […] within corporate organizations.”²³

[…]

Weighted by market capitalization, more than half of the firms listed on the Berlin stock market had [Fascist]‐connected members. This factor alone suggests that connections between the party and big business were closer than some of the recent literature has accepted. In terms of dividend yield, the two groups are relatively similar—connected firms paid a slightly higher rate of 3.4%, compared to 2.9% for unconnected firms. In both groups, a large number of firms were not making any payments to shareholders during the Great Depression.

Prior to Hitler’s rise to power, both groups showed almost identical log returns, driven by a cyclical recovery—a rise by 0.12 during the twomonth period from November 1932 to January 1933 for connected firms, and 0.10 for unconnected ones. During the two months after January 1933, however, the connected firms show markedly higher returns—a difference of 0.07 in mean returns. The next main section explores the extent to which we can document a systematic relationship between above‐average stock returns and affiliation with the [NSDAP].

[…]

After the summer of 1932, the rising tide of Germany’s recovering economy lifted all boats. Following the “seizure of power,” investors may have cheered the appearance of a more broadly based government (Figure I). In addition, those firms that supported the [Fascists] financially or had business leaders with strong links to the NSDAP on their boards experienced share‐price increases many times larger than the general rise in the market.³⁶

Figure II shows the distributions. The modal return on [Fascist]‐affiliated firms was about 8 log points higher than for unconnected firms. […] The lower panel of Table III documents significant outperformance over the period from mid‐January to mid‐March. [Fascist]‐affiliated firms saw their prices increase by almost 7% more than the rest. Controlling for additional characteristics strengthens the result.

Firms with large market capitalizations were more likely to be [Fascist]‐affiliated, but size alone did not aid in the recovery of stock prices. Regression (6) shows that firms with higher market capitalizations did somewhat better than the rest of the market. High dividend yields were rewarded during the period.

(Emphasis added.)