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Sharing Underwriters with Rivals: Implications for Competition in Investment Banking

52 Pages Posted: 11 Nov 2008  

John Asker

New York University - Leonard N. School of Business - Department of Economics

Alexander Ljungqvist

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Date Written: December 2005

Abstract

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

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

John William Asker (Contact Author)

New York University - Leonard N. School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0062 (Phone)

HOME PAGE: http://pages.stern.nyu.edu/~jasker/

Alexander Ljungqvist

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street, Suite 9-160
New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~aljungqv

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

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

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