Specialization of Bond Underwriters: Exogenous versus Endogenous Switching

Abstract:     
This paper demonstrates that previous finding of commercial banks being superior to investment banks as bond underwriters is an artifact of misusing the treatment model. Although the treatment model considers endogenous selection, it does not permit selection based on the observable firm characteristics that also interact with different treatments (exogenous switching). Using the more general switching regressions model, I find that there is no such dominance between underwriter types. Issuers seeking to minimize interest costs have rationally selected the appropriate underwriters. The presence of exogenous switching also indicates that the matched sample method should be used cautiously.

Number of Pages in PDF File: 43

Keywords: Gramm-Leach-Bliley Act, Underwriting, Switching Regressions, Endogenous Selection, Net yield

JEL Classification: G21, G24, G28

working papers series