A:

The Dutch East India Company undertook the world's first IPO and, therefore, became the first public company to issue stock. It also played an integral role in modern history's first market crash. The Dutch East India Company was formed in 1602 by a royal charter granting a 20-year monopoly on trade with the East Indies and sovereign rights in any newly discovered territories.

These incredible powers were given to a collection of merchant ships that were former competitors in the spice market. The merchants would form limited liability companies where investors would put up money for voyages in return for a percentage of the profits if voyages were successful. The problem was that the spice supply was unpredictable. Two ships arriving at once would cause a supply glut and drive down prices, hurting profits for both merchants and investors. To hedge against this, merchants banded together to form the Dutch East India Company (properly called the VOC) and essentially bribed the crown every 20 years to extend its charter.

Once the charter was taken care of, the merchants issued permanent shares in an ongoing enterprise - the first stock IPO - to raise capital to outfit a proper fleet. The VOC then used bonds to fund individual voyages and became the first multinational corporation when it set up headquarters in Asia.

From 1602 to 1696, the company paid a regular dividend that yielded 12% to 63%. In 1634, VOC ships carrying tulip bulbs set off the tulip bulb craze that resulted in a market crash. Despite a violent whipsaw in its share price - up 1,200% from the IPO price and back down to 300% from the IPO price - the company weathered the crash easily. At the height of its success, the VOC boasted 40 warships, 150 trading vessels, 10,000 professional soldiers, and many more employees and subjects. But time and competition erode all monopolies and such was the fate of the VOC. In 1800, just shy of its 200th year, the now destitute VOC formally was dissolved.

To read more on this subject, see Early Monopolies: Conquest And Corruption.

This question was answered by Andrew Beattie.

RELATED FAQS

  1. What kind of assets can be traded on a secondary market?

    Learn about the difference between the primary market and the secondary market, and what types of assets are traded on secondary ...
  2. Why would a company decide to utilize H-shares over A-shares in its IPO?

    Understand the difference between H shares and A shares. Learn why a company would decide to utilize H-shares over A-shares ...
  3. How do I place a buy limit order if I want to buy a stock during an initial public ...

    Learn how to place a buy limit order to buy a stock during an IPO. IPOs can be full of risks, and buy limit orders are one ...
  4. How do corporate actions affect floating stock?

    Learn what floating stock is, and find out about some of the actions a company may take to affect the amount of the company's ...
RELATED TERMS
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or ...
  2. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  3. Muppet Bait

    Naive investors who are lured into buying hot stocks or securities ...
  4. At A Discount

    This specifically refers to stock that is sold for less than ...
  5. Aftermarket Report

    A summary of how shares of an initial public offering (IPO) performed ...
  6. Small Corporate Offering Registration - SCOR

    A form of corporate securities registration designed to reduce ...

You May Also Like

Related Articles
  1. Stock Analysis

    GrubHub (GRUB): Will it Deliver?

  2. Trading Strategies

    IPO Flippers And The Companies Who Hate ...

  3. Stock Analysis

    Will Jet.com Revolutionize Shopping?

  4. Stock Analysis

    3 Things You Should Know About PayPal's ...

  5. Investing

    Which is the Better Bet: Amazon or eBay?

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!