52 Pages Posted: 11 Nov 2008
Date Written: December 2005
We conjecture that issuing firms seek to avoid sharing underwriters with their product-market rivals in order to limit the risk that strategically sensitive information is leaked to a rival firm via the underwriter relationship. We investigate this conjecture in a sample of 5,272 equity deals and 12,453 debt deals by large U.S. firms between 1975 and 2003. Using several distinct sources of identification, we find that this phenomenon is at least as important in determining the choice of lead underwriter as the bank's reputation or the issuing firm's existing relationship with the underwriter. We argue that this finding has important implications for understanding the nature of competition among investment banks, the durability of underwriting relationships, the success of entrants, and the likely impact of investment bank mergers on market power.
Keywords: Investment banking, Securities underwriting, Competition; Entry, Glass-Steagall Act;, Commercial banks.
Suggested Citation: Suggested Citation
Asker, John and Ljungqvist, Alexander, Sharing Underwriters with Rivals: Implications for Competition in Investment Banking (December 2005). NYU Working Paper No. S-FI-05-03. Available at SSRN: https://ssrn.com/abstract=1297732