The Networking Function of Investment Banks: Evidence from Private Investments in Public Equity

43 Pages Posted: 22 Sep 2008

See all articles by Rongbing Huang

Rongbing Huang

Kennesaw State University - Michael J. Coles College of Business

Zhaoyun Shangguan

University of Massachusetts Dartmouth - Charlton College of Business

Donghang Zhang

University of South Carolina

Date Written: September 18, 2008

Abstract

We examine investment banks' networking function in capital markets, using a sample of Private Investments in Public Equity (PIPEs). We argue that investment banks develop relationships with investors through repeat dealings, and that such relationships form the basis of their networking function. We find that investment banks, especially those with stronger networking abilities, help issuers attract more investors. Investors are more likely to participate in an issue if they have an existing relationship with the issue's investment bank(s). Correspondingly, an issuer that desires more investors is more likely to hire an investment bank than place the shares directly. We also find that issuers pay higher fees to hire investment banks with stronger networking abilities. Our empirical findings suggest that the networking function of investment banks is important in securities offerings.

Keywords: Investment Bank, Networking Function, Investor Participation, Private Investment in Public Equity, PIPE, Placement Agent, Fees

JEL Classification: G24

Suggested Citation

Huang, Rongbing and Shangguan, Zhaoyun and Zhang, Donghang, The Networking Function of Investment Banks: Evidence from Private Investments in Public Equity (September 18, 2008). Available at SSRN: https://ssrn.com/abstract=1270689 or http://dx.doi.org/10.2139/ssrn.1270689

Rongbing Huang (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

560 Parliament Garden Way
Mail Drop #0403
Kennesaw, GA 30144
United States

Zhaoyun Shangguan

University of Massachusetts Dartmouth - Charlton College of Business ( email )

285 Old Westport Road
North Dartmouth, MA 02747
United States

Donghang Zhang

University of South Carolina ( email )

1014 Greene Street
Darla Moore Sch
Columbia, SC SC 29208
United States
8037770242 (Phone)
29208 (Fax)

HOME PAGE: http://https://sc.edu/study/colleges_schools/moore/directory/zhang_donghang.php

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