Investment Bank Reputation and 'Star' Cultures

The Review of Corporate Finance Studies, Forthcoming

31 Pages Posted: 2 Apr 2011 Last revised: 4 Jun 2013

See all articles by Zhaohui Chen

Zhaohui Chen

University of Virginia - McIntire School of Commerce

Alan D. Morrison

University of Oxford - Said Business School; University of Oxford - Merton College

William J. Wilhelm

University of Virginia - McIntire School of Commerce

Date Written: May 29, 2013

Abstract

We develop a model in which individual and institutional reputation concerns conflict with one another to study why investment bank reputation concerns may have diminished in recent years. Unproven but talented bankers have incentive to signal their ability through actions that may or may not best serve their clients. In the spirit of Kreps (1990), we treat the bank as a hierarchical firm whose only asset is its institutional reputation for curbing behavior that is suboptimal for the client. The conflict between individual and institutional reputation concerns is more likely to resolve in favor of institutional reputation when firms recruit only the most talented people, and less so when unique ability is especially valuable. We discuss how technological change has contributed to a “star” culture that is unfavorable toward preservation of institutional reputation.

Keywords: Trust, reputation, financial institution, professional services firms, star culture

JEL Classification: L14, G20

Suggested Citation

Chen, Zhaohui and Morrison, Alan and Wilhelm, William J., Investment Bank Reputation and 'Star' Cultures (May 29, 2013). The Review of Corporate Finance Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1800752 or http://dx.doi.org/10.2139/ssrn.1800752

Zhaohui Chen (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-243-1188 (Phone)

Alan Morrison

University of Oxford - Said Business School ( email )

Department of Finance
Park End Street
Oxford OX1 1HP
United Kingdom
+44 18 6527 6343 (Phone)
+44 18 6527 6310 (Fax)

University of Oxford - Merton College

Merton Street
Oxford OX1 4JD
United Kingdom
+44 18 6527 6343 (Phone)

William J. Wilhelm

University of Virginia - McIntire School of Commerce ( email )

Rouss & Robertson Halls, East Lawn
P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-924-7666 (Phone)
434-924-7074 (Fax)

HOME PAGE: http://gates.comm.virginia.edu/wjw9a/

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