The Effect of Private-Debt Underwriting Reputation on Bank Public-Debt Underwriting
Rajesh P. Narayanan
Louisiana State University
Kasturi P. Rangan
Case Western Reserve University - Department of Banking & Finance
Nanda K. Rangan
Virginia Commonwealth University
Review of Financial Studies, Forthcoming
We provide evidence that commercial banks extend their reputation in underwriting syndicated loans and private placements (private debt) to their bond underwriting activities. In the absence of bond-market reputation, private-debt-market reputation enables commercial banks to win underwriting mandates from their loan clients. Further, it allows them to credibly commit to investors against opportunistically using lending information and thereby deliver superior certification benefits in the form of higher issue prices relative to investment-bank underwriters. This pricing benefit is not offset by higher underwriting fees, and thus results in lower total issuance costs for borrowers.
Keywords: Underwriting, Certification, Reputation extension
JEL Classification: G21, G24, L51Accepted Paper Series
Date posted: August 12, 2006
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