Competition and the Structure of Vertical Relationships in Capital Markets

50 Pages Posted: 13 Dec 2005 Last revised: 18 May 2010

See all articles by John Asker

John Asker


Alexander Ljungqvist

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 4 versions of this paper

Date Written: March 3, 2010


We show that information flows between investment banks and firms issuing securities affect the pattern of bank-firm relationships and that shocks to these information flows affect the real economy. Firms appear disinclined to share investment banks with other firms in the same industry, but only when the firms engage in product-market competition. This is consistent with concerns about the disclosure of commercially sensitive information to strategic rivals governing firms’ investment bank choices. Using exogenous shocks to information flows arising from mergers among banks, we show that the desire to avoid sharing investment banks has a substantial effect on affected firms’ investment in capital stock. We discuss how these information effects might help us understand how the investment banking industry is structured, how banks compete, and how prices are set.

Keywords: Investment banking, Securities underwriting, Competition, Bank deregulation, Bank entry, Glass-Steagall Act, Commercial banks

JEL Classification: G21, G24, G28, K22, L11, L14, L84

Suggested Citation

Asker, John William and Ljungqvist, Alexander, Competition and the Structure of Vertical Relationships in Capital Markets (March 3, 2010). Available at SSRN: or

John William Asker

UCLA ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Alexander Ljungqvist (Contact Author)

Stockholm School of Economics ( email )

111 60 Stockholm

Centre for Economic Policy Research (CEPR)

United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15

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