Do Bank Bailouts Have an Impact on the Underwriting Business?

47 Pages Posted: 12 Oct 2018 Last revised: 2 Aug 2019

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Pedro Cuadros-Solas

Colegio Universitario de Estudios Financieros (CUNEF)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Date Written: August 1, 2019

Abstract

In this paper, we explore the effects of bank bailouts on competition in the underwriting business. Using all the bailout measures on underwriters active in the European corporate bond markets from 2006–2013, we find that banks with large market shares (reputable banks) suffer market share losses (of 18.98%) after being bailed out, while a market share increase (of 33.55%) for those with smaller market shares (non-reputable underwriters). An exploration of the firm–bank underwriting matching also shows that the probability of being chosen as underwriter in a given deal decreases for reputable bailed-out banks, while it increases for non-reputable bailed-out banks. These results provide evidence of the effects of bailouts on underwriting competition. However, the effects seem to differ depending on the ex-ante reputational capital of the bailed-out bank.

Keywords: Underwriters, Bailout, Reputation, Recapitalization

JEL Classification: G24, G21, H81

Suggested Citation

Carbo-Valverde, Santiago and Cuadros-Solas, Pedro and Rodriguez-Fernandez, Francisco, Do Bank Bailouts Have an Impact on the Underwriting Business? (August 1, 2019). Available at SSRN: https://ssrn.com/abstract=3252421 or http://dx.doi.org/10.2139/ssrn.3252421

Santiago Carbo-Valverde (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Pedro Cuadros-Solas

Colegio Universitario de Estudios Financieros (CUNEF)

C/ Leonardo Prieto Castro, 2, Ciudad Universitaria
Madrid, Madrid 28040
Spain

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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