The Value of Institutional Brokerage Relationships: Evidence from the Collapse of Lehman Brothers

41 Pages Posted: 15 Jan 2018

See all articles by Jerry T. Parwada

Jerry T. Parwada

UNSW Australia Business School, School of Banking and Finance; UNSW Business School; Financial Research Network (FIRN)

Jianfeng Shen

UNSW Australia Business School, School of Banking and Finance

Kok Siaw

UNSW Business School

Eric K. M. Tan

University of Queensland - Business School

Date Written: December 22, 2015

Abstract

Using the sudden collapse of Lehman Brothers as a natural experiment, we examine whether mutual funds derive value from their institutional brokerage relationships. We find the impact of a damaged institutional brokerage relationship is greatest among mutual fund clients with concentrated brokerage networks and funds that specialize in small-cap stocks. Based on a difference-in-difference analysis, we find a drop in monthly fund alphas ranging from 34.2 and 70.9 basis points per month in risk-adjusted returns arising from a weakening brokerage relationship. Collectively, our results support the view that mutual funds significantly leverage their relationship capital with brokers.

Suggested Citation

Parwada, Jerry T. and Shen, Jianfeng and Siaw, Kok and Tan, Eric K. M., The Value of Institutional Brokerage Relationships: Evidence from the Collapse of Lehman Brothers (December 22, 2015). Available at SSRN: https://ssrn.com/abstract=3101959 or http://dx.doi.org/10.2139/ssrn.3101959

Jerry T. Parwada

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

UNSW
Sydney, NSW 2052
Australia

HOME PAGE: http://www.firn.org.au

Jianfeng Shen (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Kok Siaw

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Eric K. M. Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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