The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers

Journal of Finance, Forthcoming

AFA 2011 Denver Meetings Paper

63 Pages Posted: 19 Mar 2010 Last revised: 4 May 2011

See all articles by Chitru S. Fernando

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

Anthony D. May

Wichita State University - W. Frank Barton School of Business

William L. Megginson

University of Oklahoma

Date Written: April 22, 2011

Abstract

We examine the long-standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market-making services from Lehman. Equity underwriting clients experienced an abnormal return of around -5%, on average, in the seven days surrounding Lehman’s bankruptcy, amounting to $23 billion in aggregate, risk-adjusted losses. Losses were especially severe for companies that had stronger and broader security underwriting relationships with Lehman or were smaller, younger, and more financially constrained. Other client groups were not adversely affected.

Keywords: Firm-underwriter relationship, public security offerings, investment banking

JEL Classification: C78, G24, G32, L14

Suggested Citation

Fernando, Chitru S. and May, Anthony D. and Megginson, William L., The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers (April 22, 2011). Journal of Finance, Forthcoming; AFA 2011 Denver Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1572780 or http://dx.doi.org/10.2139/ssrn.1572780

Chitru S. Fernando (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/

Anthony D. May

Wichita State University - W. Frank Barton School of Business ( email )

1845 N. Fairmount
Wichita, KS 67260
United States

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

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